Saturday, May 19, 2007

Ack! As in Ack!quisition...

A is for Ack! As in acquisition of aQuantive (wow, now that is a five year chart).

Six billion dollars.

$6,000,000,000USD.

Holy crap.

In my opinion, this is a huge demonstration of fear, desperation, and dim-dog market tail-light chasing greed on our part. Every acquisition represents our failure to use our 70,000+ employee base to solve a solution or create a new market. Rather than buying back stock or pushing out a dividend, shareholder money got mis-invested in a hugely overpriced acquisition. And you're a shareholder why?

Seeing how much aQuantive is aligned with us and our technology stack makes you on the surface say, "hmm, yes, excellent strategic acquisition." Then you see the price tag (and goodness help you if you see it in the middle of taking a sip of something). "Who the hell is in charge here?" And of course, that reckless, desperate spending is now what disgruntled people will hold up as the paragon on executive spending, wondering why we're being so pound foolish while saving relative pennies for ESPP and other cut-backs.

Deal Journal - WSJ.com Bubble Wrap How Will Microsoft-aQuantive Be Remembered has this interesting gameplay comment from Steve Yuen:

Speaking of News Corp, its $5 billion offer for Dow Jones’ stable of premium brands is eminently rational compared against Microsoft’s $6 billion proposal for aQuantive. MSFT is playing checkers while GOOG plays chess.

24-7 Wall St. Microsoft Bid for aQuantive Signals Desperation

Shares of AQNT were trading at $36 yesterday and that quote was pricing in a lot of buyout speculation already. Somehow they got Ballmer and Company to offer more than $66 per share in cash, an 85% premium. Such a bid puts Mister Softy on the hook for a cash outlay of $6 billion. In return it gets a business at 104 times trailing earnings, 86 times current year earnings, and a whopping 67 times 2008 earnings.

The Key Why Microsoft's purchase of Aquantive is So Smart

Aquantive, through its Atlas division, has built the most advanced ad tracking and management technology out there. It can follow every detail of an online display ad--and help advertisers figure out where to target an ad and to whom with incredible precision. But Aquantive also tosses search data into the mix--and certainly it will do this more and more as part of Microsoft.

Microsoft agrees to buy aQuantive for $6 billion and Microsoft faced competition in aQuantive bid

"When Google bought DoubleClick, which is the prize here in the industry, it made Microsoft look more and more behind, and I think they just had to do something," said Tim Bueneman, senior vice president at McAdams Wright Ragen in Seattle and a devoted aQuantive investor who speaks highly of the company.

Even so, Bueneman said he "was just totally shocked" at the price, adding that it seems to reflect "a little bit of desperation" on Microsoft's part.

And of course there's the addition of the, what, 2,600 potential employees? Ah, screw it. If people haven't figured out that we have way too many employees by now I'm certainly not going to be able to help.

Post-Town Hall and myMicrosoft. Hey, was there a change in the way we're granted stocks? Man, what a wonderful demonstration of a small bit of poor communication that resulted in heated discussions. I think people are still trying to figure it out. Okay, backing up: I think it is great that the Town Halls happen, hopefully on a quarterly basis. It provides an important connection between executive leadership and the rest of us (and the potential for audience video cameos by [slick down the eyebrows, straighten the shirt] damn good looking Microsofties). This last one was pretty light in content, though; I would be just as happy with a few emails to skim through instead. It would be nice to have a big topic or two to cover in the future... things like:

  • Microsoft and The European Union: how is this going? This isn't just a thorn in our side but rather a bramble growing through our veins. And we hear very little directly from our leadership regarding how this is going and how we expect decisions and outcomes to affect the company.
  • Intellectual Property vs. Open Source: what's the strategy here? For the longest time, we've held off throwing punches here because we knew, although there are infringements, it would be costly to wage this battle on the public stage. What changed? GPL3?
  • Windows 7 and Office 14: how are the cash cows next iteration shaping up (I mean, I know, but I'd like to hear what leadership thinks)?
  • Windows Live / Core / MSN / Search: is this relatively detangled and figured out? So much groovy potential.
  • Zune / WMP / WMC and DRM: I know, no where but up for MP3 player market. Have we acknowledged the anti-DRM movement? Are we brave enough to take a step in that direction?

Regarding myMicrosoft: tweaks. Iterative tweaks that seem to be focusing on the tail-end of being a Microsoftie and not even getting close to undoing Mr. DiPietro's professional failings as an HR manager. The workflow evil, time-consuming career performance tools remain, they just get consolidated into one site. You can provide feedback up the chain and provide ad-hoc feedback for other people. The financial planning stock grant change. The ability to ship packages again-OMG that's awesome! Lisa I love you! I-ahem, eh, excuse me.

Hey, my gushing reaction to the return of employee shipping really surprised me: again, they're returning an easy benefit that was yanked away some time ago. An awesome, time and money saving benefit for those of us who ever have to ship packages. I still miss the flip-side to that coin: direct office delivery of personal packages shipped to me at work. Both of these save me time and help me get work done. Now, I have to occasionally clear my schedule so that I can work-at-home the day that my new personal laptop or handheld or some other package I have to sign for is arriving.

Oh, and Limited II? Well, now you're just a 10%'er. You were before, but because of the screwed up metrics not being well thought-out managers wanted to soften the blow for you ending up in the 10% bucket. I don't think we're going to introduce 10% II or 10%+ but I wouldn't put it pass HR once managers start seeing super valuable high-level employees that have plateaud dropping into the 10%.

But nothing about 15% ESPP or increased 401K or the MSPoll. Well, it was probably too early for the MSPoll numbers to be revealed, but... OUCH! I'd say anything below 60% requires action and anything - from the broad-Microsoft-as-a-company questions - below 40% requires executive leadership action. Or at least acknowledgement.

Some interesting comments to wrap up on: from the school of suck-up-your-salary-compression, T.Higgins shares:

As a person who has been with Microsoft for 8 years and contributed (in many public facing ways) to improve the perception of Microsoft in the developer community, I [was] provided information that shocked me. Actually, it makes me angry. A new hire straight out of college (read: no experience) will be compensated slightly less than I currently earn. Never mind that there is a $5000 signing bonus AND because there is, apparently, no space will be given the summer off before even swiping her badge.

Is it time to just give up stock compensation altogether and just give the people cold-hard-cash (or acceptable raises):

I think it's time for Microsoft to end giving stock awards to low and mid-level employees. Keep, and even bolster ESPP, but let's stop pretending that stock is a significant portion of the compensation package. It's been years since anyone worked harder because stock options were vesting. Let's admit to ourselves that there is now a rank and file at Microsoft; pay them commensurate to their value in the marketplace and even base raises on group/division profitability, but let's not pretend anymore that employees have an ownership stake in the company.

As a manager, it had become rather embarrassing to hand my L59-61 employees their pittance of shares. Incentivize people with promotions to technical leadership or partner jobs, and work to returning promotions to a merit system from the nepotistic buddy system in place today.

And one last one to reflect on our awesome compensation package vs. the potential raise you can get working beyond Microsoft:

I left Microsoft one year ago. my biggest fear when I made the decision to leave was the health benefit change. As you mention, no one even comes close to what you get at MSFT. Well, let me share my experience with you. Background - I have 3 kids and I am 35. I left as level 63 and made back then about $115K a year. I left because I got an offer (that most people at MS could get but just don't try) of about $180 a year.

My total out of pocket in health is about $1000 a year. So the math becomes very simple. you CAN MAKE much more outside of MS. There is so much going on outside.... benefits at MS are OK but JUST OK.

Striking my best Arsenio Hall pose here: "hmmmmmmmm..."


170 comments:

Anonymous said...

You know what would be cool, or at least a bright side of this acquisition? If all divisions had to pony up open and bubble headcount to absorb employees of aQuantive. Then at least we'd have no HC growth as a result, just filling open slots.

Anonymous said...

I'm an ex-softie and not a fan, but wtf is going on there??? I just don't get it. I am now convinced that it would have been a big favor to everyone if the DOJ HAD split up Microsoft (something I thought was a bad idea then). I just can't imagine the amount of random churn there. It's like the thousand monkeys with the thousand copies of Power Point taking a thousand years to come up with a winning business plan. What are the design makers consuming over there???

Anonymous said...

About the comment "you CAN MAKE much more outside of MS".

This is so true. I left MS after almost 10 years there about 6 months ago. I now have a significantly higher paying job.

What's funny is that during the exit interview, they threw everything out there. "You're benefits won't be as good." "Here's a promotion if you stay." "Have you looked at a different group?"

I have to say the question I enjoyed the most was when they asked how MS compensation compared and the surprised look I got when I said "It sucks." and told them how much I was going to be making and that it only took three days to have multiple offers on the table.

I have a better job, my stress is down, I my work has improved, my manager isn't using me as a stepping stone, I get credit for the work I do, and the amount I now pay for benefits doesn't come anywhere close to the increase in pay. (My hair is still falling out though).

Anonymous said...

"My total out of pocket in health is about $1000 a year. So the math becomes very simple. you CAN MAKE much more outside of MS. There is so much going on outside.... benefits at MS are OK but JUST OK."

you can make more than an L63 does at MS if you sell cars, copy machines and pharmaceuticals, but who wants to actually do that?

i know a *ton* of people who have left MS at the 63/64 level in the last few years, and ain't none of them gone on to a massive paycheck -- they left to do cool stuff, and most of them took a fairly hefty cut in total yearly comp.

of course, if you want to go work on crappy plumbing stuff or if you want to be some company's director of IT (shudder) or a consultant (double shudder) then you can pull-in 180+ pretty easily... but again, who wants to do THAT?

paul said...

I spoke to Steve Berkowitz, the VP of Microsoft's Online Services Group several weeks ago in New York about placing ads from Microsoft on community blogs, he said we want to do it right and we're not ready yet.

Microsoft became successful by Partnering with companies big and small, so why not include Partners in the new advertising strategy?

The software for delivering ads should be easy for the worlds largest software company to build, what's needed is an auction site where where ads can be bought and sold by Partners big and small.

Anonymous said...

This post is just dumb.

Exactly how is Live meant to compete with GOOG if mgt doesn't support us with good acquisitions?

We might be able to build better mousetraps but
a) no-one cares - on the web it's about being where the people are, not about functionality.
b) we can't do it as fast as GOOG because frankly, they have more genuine experts than we do and their processes are more streamlined.

Yeah, the price might be a little high, but so what? Online advertizing is set to grow many multiples of that price, and if this helps us grab a big piece of that pie, then I'm all for it.

How exactly would you propose to get us some of that sweet advertising money Mini?

neo man said...

Mini seems to be going backwards … It is just too easy to bitch … Although I do agree that I would like to be able to have packages shipped to work! (Old ESPP sounds better too, 15% discount on the lower of the starting and ending share price.)

Okay, here is the deal. If Microsoft shrinks down in size (more than 10k) and is still a great place to work I’ll be one of the first in line to say Mini was right.

Now, if this Ad business does take off and becomes a strong growing and profitable business, will you Mini give credit to the Microsoft leadership?

Anonymous said...

I was just talking to a friend at IBM on Thursday and she was asking me about the rumours of a Yahoo acquisition. My response was along the lines of "Microsoft has an inferiority complex and I hope it doesn't drive them to do something rash".

I wake up the next morning to hear about us spending six billion on a company I've never heard of while waiting for Outlook 2007 to finish its 2+ minute load time . . .

Serenity now.

Anonymous said...

MyMicrosoft 2.0 is a net negative for employees. Not a single issue of any importance was addressed.

Executive leadership is as disconnected as can be.

Anonymous said...

Six bbbbaaabillionn. Congrats to Aqu! Wow. Bubble 2.o kicks butt.

Lesson One: Microsoft's new domain is ad based, alien territory, but probably something Ballmer would feel right at home doing. hint hint.

Wait... better not. All the new talent might leave.

The benevolent troll.

BTW, your blogger servers were down and yesterday, multiple blue screen attacks were easily survived when I logged onto Mini posting page.

Must have been one of those Starlings.

The Good Troll.

Sorry Mini, but when you wrote Ack! I could not help but be sucked into that old B-movie memory lane of the works of Tim Burton, here:

http://www.timburtoncollective.com/sound/mars7.wav

and here (re AcQ logo):

http://www.timburtoncollective.com/sound/mars1.wav

Joking aside, interesting comment by Ed Sim at BeyondVC.com:
"but will clearly admit that when it comes to managing a public company and having to hit quarterly revenue targets, you have to listen to your customer, the advertiser."

I guess that is a lesson maybe Microsoft might begin to look at. Who are Microsoft customers anyway? Business? Advertisers? Gamers? Joe Sixpack? End Users? All of the above. Maybe the key to your sagging stock is the failure to understand who your customers really are and therefore failure to target products accordingly by listening then defining products accordingly.

Anonymous said...

Hey, was there a change in the way we're granted stocks? Man, what a wonderful demonstration of a small bit of poor communication that resulted in heated discussions. I think people are still trying to figure it out.

>
This is a cost cut move. Gates and Ballmer are planning to welcome another 30+ thousand people in the next three years to compete with Google.

Charles said...

Now, if this Ad business does take off and becomes a strong growing and profitable business, will you Mini give credit to the Microsoft leadership?

Similarly, do you presently "give credit" to the Microsoft leadership for its' existing unprofitable business lines, and given the acquisition is for at least double the MCAP on future earnings, will you define "profit" as exclusive of acquisition expenses ( as Zune and Xbox are said to be "profitable" by ignoring the sunk R&D costs)?

Is "Microsoft leadership" the reason for the profit of Windows and Office?

What precisely are the standards of "profitability" and "accountability" as they apply (if at all) to Microsoft leadership? Inquiring minds wanna know.

Anonymous said...

That "another 30+ thousand people" comment is really depressing. We don't know how to use the people we have, and most of our best work and best decisions are delivered by teams of 1, or occasionally 2, people.

If only Bill would declare June "Mythical Man-Month Month" in Redmond and make everybody read the book and apply it.

Anonymous said...

Interesting re-org in putting STB under Jeff Raikes. Does anyone else think this looks like a pre-cursor to a break up? I mean, now we can cleanly carve off Windows into its own company, MBD into another and then whatver we do with Live and Entertainment. Honestly, that would be cool. I want the company broken up. I'm in Raikes' world and I'd love that group to be decoupled and given some more freedom to innovate.

Keeperplanet said...

>I'd love that group to be decoupled and given some more freedom to innovate.


Amen to that. Put you hand on the radio and hope.

Dang, I might even $BUY$ a new operating system from 'Microsoft Whatever' some day if that were to happen.

Anonymous said...

Compensation - other than doubling your salary, there is also the sideways move into real work/life balance.

I moved to a position at the UW. I am making only 85k, down from 96k (62), but it's a real easy 9 to 5 job with perfect job security. Compared to working my ass of 7 days a week to get promoted ("You're really close, maybe next year") that's a much better hourly rate.

Health insurance is not an issue, and everyone I meet comments on how relaxed and happy I look - the lower stress level might be better for my health in the long run than being insured by Premera.

Anonymous said...

Mini,

I've thought about the stock compensation stuff at length.

Stock options were great. Sure, those of us in the trenches didn't get the huge payoffs that those higher up did, but it did have everybody focused on a specific goal.

As somebody who holds a fair number of stocks, I do understand the arguments against stock options, and agree with most of them. In tech companies, stock options are used to keep compensation off of the books and take the money directly from the shareholders. Now, you could keep stock options if you were willing to expense all of them (and I'm frankly not sure why we didn't do that - well, I *suspect* I know why, which I'll get to in a moment...). But we chose to switch to stock awards...

Which aren't really worth anything. Options are motivators to being productive and efficient (so the stock price can, with any luck, go up). Awards, on the other hand, are motivators to stick around and vest, and not rock the boat. And as such, are exactly what MS doesn't need. I think we chose them as a nice way to reward partners excessively (through their own compensation system) while still giving something to the rank and file.

And I agree with you that it should be abolished.

What I don't understand is why this company doesn't have a simple profit-sharing plan. Profit-sharing has been effective for years and years, and would once again focus people on the bottom line. And it wouldn't have to cost more than the amount spent on stock.

Who da'Punk said...

Now, if this Ad business does take off and becomes a strong growing and profitable business, will you Mini give credit to the Microsoft leadership?

Of course. The question is, how deep is the hole currently that we have to fill to match return-on-investment? At least $6,000,000,000. Maybe plus another $2,000,000,000. Once we have that filled and are making quarterly profits I'll be the first to go to Live Search, enter "eat crow", and find which one of our advertisers can help me with that endeavor.

When will that date be? Will it be before or after the Xbox business investment has made up for its billions?

It makes sense for us to have a presence in this space. Good business sense. Just... how much is the price of admission? If we acquired AQNT for $10,000,000,000 would that still have made sense to people out there? Where's the line?

Anonymous said...

Let's take a look at just some of Apple's acquisitions over the years:

- Apple buys Nothing Real, developer of linux-based "Shake" compositing software; turns it into OS X-only "Shake" (goes on to win Oscars, etc.)

- Apple buys Key Grip from Macromedia (cross-platform NLE video software); kills Windows version; turns it into Final Cut Pro (versions 1-6);

- Apple buys Spruce Technologies and Astarte (makers of DVD-authoring software); turns their work into iDVD and DVD Studio Pro; then makes all aforementioned video software integrate together;

- Apple buys Emagic (makers of Logic and Logic Pro, audio editing software); re-brands Logic and (probably) uses these assets to make Garage Band;

- Apple buys portions of what becomes the iPod software from PortalPlayer and Pixo;

- Apple buys SoundJam jukebox application from Casasy & Greene and turns it into iTunes (the only software on this list that is re-deployed for Windows).

There's more (including the company that designed the datamining algorithms that let OS X Spotlight see inside Word documents and PDF files) but I think I've made my point.

Anonymous said...

Interesting re-org in putting STB under Jeff Raikes.

Raikes/Johnson power struggle, and KJ lost this battle?

Anonymous said...

Charles and Mini:

Your definition of profit is strange. If somebody buys Microsoft today, even without premium, by your definition, it will take 20 years to make a profit by the buyer.

There is a notion of P/E. All Xbox needs to do is to make few millions dollars profit with a good growth rate to eventually reach a profit of $100M annually to justify all the expenses of developing Xbox business. Similarly all we need to do is to increase the growth rate or profitability of AQNT by few percentage points, due to synergy, to recoup the premium.

Yes you may repeat your usuall rant that AQNT would become less efficient under our bloated cost structure. In that case we should have offered the negative premium.

neo man said...

"Where's the line?"

Hard to say, but it will be easy to measure in the end. Microsoft has healty income statement and balance sheet so just looking there won't tell much. I think that when the MSN segment (including ADs and probably search) is profitable and growing with it being confirmed by our stock price over $50 ... then you can consider the line crossed.

Jason said...

"I moved to a position at the UW. I am making only 85k, down from 96k (62), but it's a real easy 9 to 5 job with perfect job security. Compared to working my ass of 7 days a week to get promoted ("You're really close, maybe next year") that's a much better hourly rate."

yuck, both of those options are to be avoided at all costs IMO -- and it's people looking for that perfect and "easy" no-stress 9-5 job who i want OUT of *my* microsoft... LIKE YESTERDAY.

there's a huge difference between sacrificing your life to a company and punching the clock to do something "easy" that might as well be done by a monkey -- and believe it or not, we have a whole bunch of people at the 'soft right now who believe that "work/life balance" means "work is just this little thing i do every day for 8 hours"... and i want all of those people to go away because they're as much of the reason we're in the toilet as our execs -- when you hire average people with no passion you don't have anyone to pay attention to what the execs are doing.

i want to do cool stuff -- and every once in a while i want things to get hot and hectic and maybe require me to work the occasional weekend or late night because there's some pressure and it's hard and it's exciting. and duh, my family will understand that every once in a while things will get hot and heavy at work and we'll work together as a family to make sure that things stay in balance.

because i have a spark and i don't want my job to be "easy". and what's more -- i don't want to work with people who want their jobs to be easy because those people suck.

and THAT, my friend, is *my* definition of "work/life balance", which is not the definition used by today's legion of stepford clock-punching zombies.

blech.

Anonymous said...

Raikes/Johnson power struggle, and KJ lost this battle?


That would be my bet. Raikes had his first win when he got Exchange Server, but he has wanted the entire server business for years, and now that Allchin is gone he got it.

Anonymous said...

On Apple aquisitons: good point, and I bet all those companies cost Apple a whole lot less than 6 billion too!

Anonymous said...

>> family will understand

I doubt you even have a family (i.e. kids). If you did, you'd rather be spending your weekends and evenings with them. The truth is, you don't have to work 80 hour weeks to do cool stuff. In fact you can easily outperform 80 hour workaholics if at work you concentrate on WORK and cut out the bullshit. It's called time management, and it's a tough art to master.

Anonymous said...

That would be my bet. Raikes had his first win when he got Exchange Server, but he has wanted the entire server business for years, and now that Allchin is gone he got it.

You think stack ranking is cutthroat for level 60 ICs, you can only imagine the politics that goes on when you're trying to position yourself to take over. Especially when your boss shows no signs of wanting to leave. :(

Anonymous said...

31.12 +0.29

9:00 am Monday.

Butaboombuttabing because reorg and Acq?

Anonymous said...

Jason said...

[ A bunch of hater, lower-case stuff about 9-5'ers at MS ...]

Spoken like a true noob, dude. MS needs more folks just like you -- if not to perform the work-hard-not-smart stuff that long-timers have figured out a way not to do, then to continue to feed the mystique of MS as a innovative, rewards-hard-work-and-dedication, young-and-nimble Place To Work.

I’ve got a question for you, noob. Once all those tried and true, backbone of the company (both time-wise and experience-wise) people are gone from your sweatshop, who is going to run the company while you are taking your “Hey, thanks for working 60-80 hour weeks for the last 5 years - now you 5000 people can take a free week” time off?

Anonymous said...

"i know a *ton* of people who have left MS at the 63/64 level in the last few years, and ain't none of them gone on to a massive paycheck -- they left to do cool stuff, and most of them took a fairly hefty cut in total yearly comp."

and

Jason sez
"yuck, both of those options are to be avoided at all costs IMO -- and it's people looking for that perfect and "easy" no-stress 9-5 job who i want OUT of *my* microsoft... LIKE YESTERDAY."
"because i have a spark and i don't want my job to be "easy". and what's more -- i don't want to work with people who want their jobs to be easy because those people suck."


Both you obiously miss the point.

First numbers and figures dont cover the whole compensation.

Secondly, just because someone values life AS WELL AS work doesnt not a "clock punching zombie" make.

Thirdly, "easy" is a relative term. "Easy" from an ex-MSFT perspective can simply mean being able to get work done without needless interferance and with a schedule that allows for some time to decompress regularly. I think the "Easy" Jason refers to is what anyone with any real ability and talent in this industry would refer to as "rote and boring". I know I would

During my life at MS, 'overtime' was not only expected, but BUILT into the bloody schedule. In my current position, when those rare late nights and weekends are required (and it does happen on occasion. That's part and parcel to this work) it is considered a failure of planning and the whole team works to avoid making that mistake again. And that is only one small example of the difference. Because someone desires a work schedule that is relatively stable and 'normal' doesnt mean they dont care about the product or company...it simply means they actually understand that poor dead horse: "Smarter not harder" and put it into practice. All too often, the long hours and extra effort in my experience at MS were because of someone else's failure. But the culture at MS didnt treat it as such. But rather as routine. That pissed me off.

Now my money comp is about an even wash. But I am happy with that. Why? The mortgage is getting paid. Retirement is on track. Enough is left over to enjoy a few minor extravagances now and again. My acid reflux is long gone. My weight is normal. My health is better. My wife smiles more. My family can actually expect me to attend school functions. We actually take family vacations that last more than a day or two. My children arent strangers. My wife and I enjoy a lot more sweaty, happy monkey sex. My work is challenging, interesting and we create software for an industry that is complex and that I have little understanding of (though I am learning quickly). Sorry Jason, but if that makes me a zombie, gimme another helping of brains, please.

So, the comnpensation is not *just* about the cash. Nor does it mean someone is worthless just because they found MS environment to be less than the perfect one for them. (or that they or the company changed so that it no longer suited them) Am I saying everyone should leave? Hell no. I am sure plenty of people thrive under the current MS culture. I *am* saying that showing contempt for someone who finds a different environment more productive for them is short-sighted, arrogant and dangerously ignorant.

Anonymous said...

yuck, both of those options are to be avoided at all costs IMO -- and it's people looking for that perfect and "easy" no-stress 9-5 job who i want OUT of *my* microsoft... LIKE YESTERDAY.

There is no honor or moral high ground in working super hard at Microsoft. Anyone who does is a sucker.

You can put in 80 hour weeks to make the perfect feature and then PM (through lack of skill and foresight) will arbitrarily change the design on you and invalidate half your work. Management might cut your feature entirely. On the off-chance that the feature turns out great, your PMs and managers will take all the credit and you'll be stuck with the same 5% raise that your lead gets for doing nothing.

Explain to me how this is something to strive for?

Anonymous said...

People are really hung up on the $6B figure. Seems the size of the number is more important than what the number means to Microsoft. In short $6B is well within Microsoft’s means; it isn’t chump change, but it only about what Microsoft has been spending a quarter to buy by stock. When a company buys back stock, that money just gone, the shares disappear. While a company can issue more stock at times, buy back stock isn’t always the greatest use of funds.
Now this $6B is going to be used to bring in more than $500M revenue and $50M of real profits and the company is growing about 3x what Microsoft is. This might be looking like a pretty good deal for Microsoft in a few years.

Anonymous said...

6 billion for one company that does nothing to boost one of the biggest concerns - decreasing marketshare. Microsoft just lost 10% of it's share and is down to 9% while Google sits at 55%.

Meanwhile, in the past 2 years there has been 6 billion invested in other companies - aol, myspace, 24/7, and Doubleclick. All of these increased both expertise in online advertising as well as increased market share. I don't understand this aquisition at all.

I keep hearing "Field of Dreams" in the back of my mind - Build it and they will come. Made for a good movie, but I don't know about it as a business plan for Microsoft.

Anonymous said...

The Apple aquisitions nearly all flow into the software package users get for free with a new Mac. The rest is either iPod-related or professional media related.

There's a direct link between these purchases and the value users get when they buy and use a Mac. In my view that makes these aquisitions very smart, as they really help sell the Macs.

This aQuantive acquisition may well be a similarly smart move. I've heard rumours about what these guys have in the pipeline, but nothing concrete so far. It may be that $6B was a good price or a horrible price, but we won't really know that for a few years.

MSFTextrememakeover said...

"All Xbox needs to do is to make few millions dollars profit with a good growth rate to eventually reach a profit of $100M annually to justify all the expenses of developing Xbox business. Similarly all we need to do is to increase the growth rate or profitability of AQNT by few percentage points, due to synergy, to recoup the premium."

Your math here is seriously flawed. You might want to review and correct it before accusing others of having strange definitions for profitability.

Anonymous said...

because i have a spark and i don't want my job to be "easy". and what's more -- i don't want to work with people who want their jobs to be easy because those people suck
Coincidentally I don't want to work with people like you, who think they are the last coke in the desert. Lots of us can do in 8 hours what you can do in 12 hours, I'm sure you spend a good deal of your time whining, critizicing and backstabbing others. Hope I don't find you in my path....

Anonymous said...

Wisdom of the Crowd and mind-clearing effects of a weekend allowed the stock market to speak loud & clear: the AQNT acquisition was a great strategic move for Microsoft. Microsoft’s tactics signal this is a new challenge and it’s ready to update its playbook. It is encouraging Microsoft is adopting new tricks.

Anonymous said...

"Spoken like a true noob, dude."
"There is no honor or moral high ground in working super hard at Microsoft. Anyone who does is a sucker."
"Coincidentally I don't want to work with people like you, who think they are the last coke in the desert."


Wow, nothing like a spark of enthusiasm to bring the jaded and embittered to put it out.

Are you proud of your words? Would you wear them on a t-shirt in front of your coworkers? Would you post it on your office door?

No? Add lack of honesty and integrity to whatever else is wrong with you.

Anonymous said...

>>>>>>>>>"All Xbox needs to do is to make few millions dollars profit with a good growth rate to eventually reach a profit of $100M annually to justify all the expenses of developing Xbox business. Similarly all we need to do is to increase the growth rate or profitability of AQNT by few percentage points, due to synergy, to recoup the premium."

Your math here is seriously flawed. You might want to review and correct it before accusing others of having strange definitions for profitability.<<<<<


Xbox has sunk about $4B net. In the growth phrase, PE of 100 or even 1000 or even infinite is not unheard of.

Anonymous said...

If only Bill would declare June "Mythical Man-Month Month" in Redmond and make everybody read the book and apply it.

They should just hand a copy of this to everyone at NEO - or would that be kinda ironic at this point? Seriously though, this is a valuable book

Anonymous said...

There is no honor or moral high ground in working super hard at Microsoft. Anyone who does is a sucker.

On the off-chance that the feature turns out great, your PMs and managers will take all the credit and you'll be stuck with the same 5% raise that your lead gets for doing nothing.


It sounds like you don't know as much about playing the game as some around here do. MS is a political place. You have to sell your contributions as an FTE, just as much as you sold your technical skill to get in. That's the reality of the company today. If this doesn't work for you, find an employer that suits you better.

Explain to me how this is something to strive for?

It's not about honor or moral high ground, although I happened to like our product and the Puritan Work Ethic in me inclined me toward doing as much as I could to make it a success in the marketplace.

Here's what it's about: Stock awards approximately equal to 3/4 annual pre-bonus salary, two years running. Each year, not total.

Naturally it does require waiting the 5 years to see it all vest. That's why I changed groups to one with less starmaker ability, but also correspondingly much less stress. I know my limitations. A team with mostly-standard hours and much saner GPMs has been a good fit for me after a period that was quite different. My wife is glad that we can spend time together again.

To those who are considering leaving for work-life balance reasons. Consider changing groups. You might be surprised at the difference between groups occupying different subtrees on the org chart.

Charles said...

Anonymous notes: Your definition of profit is strange. If somebody buys Microsoft today, even without premium, by your definition, it will take 20 years to make a profit by the buyer.

Well, prior to acquisition AQNT had an MCAP of $2.7B and free cash flow of $63M (ttm March) for which MSFT spent $6B, or $3.3B of MSFT free cash to acquire AQNT's free cash flow: Assuming MSFT had its cash invested in US treasuries at, say 5%, that $3.3B was earning $165M/year, which has now been committed to paying AQNT shareholders in exchange for an acretitve free cash flow of $63M.

Assuming then that MSFT doesn't dismantle or impair AQNTs operation as it is assimilated into the Borg, Ballmer spent an *extra* (above and beyond mcap) $3.3B to forego an interest stream of $165M to receive instead a free cash flow of $63M.

So actually it will take 52 years for that $63M free cash flow to recoup the extra $3.3B spent to buy it, not 20 years, and US Treasuries would still have paid better. OTOH, for that free cash flow to recoup itself in, say 20 years, would require a purchase price of about $4B, which is still a 67% premium over market cap. Is that your definition of "profit"?

There are many ways to value acquisitions. If someone has one that shows a profit for MSFT, I'd like to see it.

And for those who insist this was a great strategic acquisition, Ok, then why is it strategic now but not years ago when AQNT was cheaper, and how exactly is MSFT going to leverage AQNT *without* diluting it? Inquiring minds still wanna know.

See also http://msftextrememakeover.blogspot.com/2007/05/its-official-ballmer-has-lost-it.html

MSFTextrememakeover said...

"Xbox has sunk about $4B net. In the growth phrase, PE of 100 or even 1000 or even infinite is not unheard of."

More like $5B+ (and counting). Spinning off Xbox would be the most realistic (only?) way of recouping the money spent - assuming there was interest either in an IPO or by an external buyer. However, the whole goal of the "emerging businesses" was to provide the next growth areas for *MSFT*. Therefore, it's highly unlikely Ballmer will spin it off. So as an internal entity and at [your?] $100M annual profit, it would take FIFTY years to breakeven - not counting the opportunity cost. BTW, I happen to think it will make more than $100M annually at some point, but recouping the investment will still be measured in decades...

Anonymous said...

"So actually it will take 52 years for that $63M free cash flow to recoup the extra $3.3B spent to buy it, not 20 years."

Yeah, like the absorbed Aquantive's earnings could never possbily rise ... or drop.

"There are many ways to value acquisitions. If someone has one that shows a profit for MSFT, I'd like to see it."

Our stock price didn't dip after the acquisition. If the analysts for the institutional investors think it's good then it's good enough for me.

"Ok, then why is it strategic now but not years ago when AQNT was cheaper"

Ever eat an unripe fruit?

Anonymous said...

Charles, in your calculations the treasury interest is expected to remain the same but AQNT is growing like 50%.

Do the calculations again in taking this growth rate into account. You would see that AQNT was underpriced by the market. There were more than one player who were willing to give $6B.

Anonymous said...

>>"Spoken like a true noob, dude."

>>"There is no honor or moral high ground in working super hard at Microsoft. Anyone who does is a sucker."

>>"Coincidentally I don't want to work with people like you, who think they are the last coke in the desert."

>Wow, nothing like a spark of enthusiasm to bring the jaded and embittered to put it out.

Um, no. Nothing wrong with your spark of enthusiasm. You assume that everyone who doesn't want to put in the hours you do is a slacker with no talent. That's arrogant, and it torques people off. (Your presumption is also untrue - your level of talent is in higher supply than you like to think.)

Drop the arrogance toward those you have a different perspective, and you'll get farther when you try to say something...

MSS

Anonymous said...

"So actually it will take 52 years for that $63M free cash flow to recoup the extra $3.3B spent to buy it, not 20 years, and US Treasuries would still have paid better."

Lots of numbers, but no understanding!

Your numbers are based on an assumption that everything remains constant. However aQuantive is growing much faster than Microsoft. The scale of Microsoft should also help reduce costs and bring more money to the bottem line. That $62m FCF could and probably will change a great deal.

Another nice thing about this deal is that Google depends on aQuantive for a good bit of business. Isn't that interesting?

Anonymous said...

Thanks for making us feel so welcome!
(An aQuantive employee)

Anonymous said...

It is shocking so see so many people throwing numbers around as if they know what they are talking about when clearly they don’t. Or else they just want to bitch.
Okay, here is the deal. When revenue starts going up above the fixed costs of a business the margin starts heading down towards the variable costs. In aQuantive case, last year the fix costs were around $295M and the variable cost were $67.5 million. They ran at around 16% of sales. (On a income statement this is “Cost of Revenue”). From 2005 the fixed costs were increased by $87 million while the revenue grew by $134 million. It is also interesting to note that much of the fixed cost happen in the 4th quarter of the year with negative cost of revenue. (Is this some kind of pay at the end of the year thing?) Whatever that is it could be changing.
Okay, let’s assume the headcount will grow 10% a year pushing of the fixed cost. This year they are projected to grow the top line by 50% YOY … Lets use on 40% and run a few years and 20% for the variable costs.
This gives an equation for the bottom line of:
Profit = (442) * 1.4 ^ n * (1 - .2) – 295 * 1.1 ^ n
Where n is the number of years and 20% is the fixed cost.
If they can do that for a say 3 years … (Assume their same calendar year)
2007: 618 *.8 - 325 = $169 million
2008: 865 * .8 - 358 = $334 million

No point in going further as these things change all the time. The point is that this business is posed for some great growth if things go well. Microsoft must be banking on it. If it even goes close to this, this could turn out to be a great deal!

Anonymous said...

>>Wow, nothing like a spark of enthusiasm to bring the jaded and embittered to put it out.

>Um, no. Nothing wrong with your spark of enthusiasm. You assume that everyone who doesn't want to put in the hours you do is a slacker with no talent. That's arrogant, and it torques people off. (Your presumption is also untrue - your level of talent is in higher supply than you like to think.)

Drop the arrogance toward those you have a different perspective, and you'll get farther when you try to say something..."

OK, let's get one thing straight: i'm jason, the OP, and that second comment came from a kindred spirit -- not me.

but to expand on my original point -- i'm *not* talking about putting in 80 hour weeks and i'm not talking about giving my life over to microsoft in some kind of crazy zealot frenzy. what i *am* talking about is a new culture where people DEMAND that their professional lives fit into a 9-5 box, and it's these people who absolutely, yes indeed, do suck because they turn what needs to be a creative endeavor into regemented shift work.

to the guy who said i don't have a family and that i'm a noob -- wrong on both counts. i would wager that my family is probably larger than yours, and i'd also bet that i've been around the block more times than you have. just a hunch. but i love what i do and i'm *really* good at it, and i consider my job to be equivalent to a research scientist or physicist or movie director... insomuch as when you go after a big, hard, gnarly prize then sometimes you get so caught-up in the pursuit -- or sometimes the stakes are so high -- that you just can't tear yourself away... or everyone pulls together who's working on the project in the 12th hour to do something amazing that's never been done before.

and so, most of the time i make sure that i fit my weeks into a suitable container so that i get to be a full person and enjoy my family life and other pursuits... but sometimes the thrill of the chase, the high-stakes and the LOVE OF WHAT I DO means that i stay at work until 3am because i'm in the zone, or work a weekend or two here or there -- HERE OR THERE -- because we're rushing to hit our deadline and everyone is working like a highly oiled machine.

for those of you who can't relate to this and think i'm nuts -- YOU SUCK, and i don't want you at microsoft... although sadly there are more of you every year.

for those of you who can relate to this but have chosen to scale-back over time to devote more time to your families, that's peachy... but i would suggest that if you can't devote even a single weekend in a year, or a few late nights in a year, to the pursuit of something you're wildly passionate about doing that you've lost a vital part of what makes life great.

i'm not an 9-5er because *i can do really cool shit*, and sometimes i'm swept up in the madness of grasping for the brass ring. and it doesn't matter if i'm swept-up at microsoft, a startup or somewhere else -- the corporation isn't what's important... loving what you do because it captures your soul is important. family is critical -- love for what you for $$ do is also critical.

i felt like this when i was single and just out of college, and i feel like this at 40 with a big family and a whole lotta years in this industry. and i've watched us hire people who will never be able to experience this thrill and, i'm sorry, but y'all are not my people and y'all are responsible for the downfall of the company as much as any crazy executive nonsense.

this is not about working styles -- it's about love for what you do. and there are too many people at the new microsoft who have no love.

Anonymous said...

Indeed, a lot of numbers being thrown about. However, what originally sparked the debate was the suggestion that $100M in additional annual revenue somehow justifies the price tag. I agree though, that if we assume AQNT is a growth play (I keep reading 30-50% YOY) then sure, the price may indeed be justified.

I'm more curious though about the motivation behind the acquisition. MS has struggled to grow the online area of the business organically, which in my book is a failure of leadership because everyone knows MS hires the best and brightest engineers. And AQNT, being relatively tiny compared to MS, seems unlikely to affect real change in leadership after it is assimilated.

It seems to me, as a non-softie and long time customer, that MS has lost its soul. What drives MS these days? Almost every quote from MS execs about the acquisition has focused solely the growth rate of the online Ad market, and how MS wants a larger piece of that pie. Is this the only motivation? I fully understand that MS is beholden to its shareholders, so I expect a bottom-line explanation to some extent. But where is the overall vision, the desire to do something innovative, unique?

Anonymous said...

Wow, nothing like a spark of enthusiasm to bring the jaded and embittered to put it out.

I read the above and had similar thoughts. There is a concept of "Sustainable Pace" which is separated from "not having weekends".

I really believe that working 70 or 80 hours consistantly is a failure on all ends. The exceptions are situations like when you are building a business as a startup. Even that needs to show progress and slow down, because keeping up that kind of pace is extremely difficult.

FWIW, I find myself not being able to innovate as a developer nearly as well as I was before coming to MS. There are a lot of smart people, but looking from a high-level, so many things could be done if we made it easier for people to, not just change teams, but maybe even temporarily work on features that interest them.

For example, take some open source projects. People are able to see the needs, and contribute those sections that interest them. Imagine if we could setup a way to have people contribute features to products. Would it be hard? Absolutely - we have all sorts of things to worry about like security and internalization. But how empowering would that be?

Anonymous said...

this is not about working styles -- it's about love for what you do. and there are too many people at the new microsoft who have no love.

Alec Baldwin, precursor to the SPSA partner. :)

"That watch costs more than you car. I made $970,000 last year. How much you make? You see pal, that's who I am, and you're nothing. Nice guy? I don't give a shit. Good father? Fuck you! Go home and play with your kids. You wanna work here - close! You think this is abuse? You think this is abuse, you cocksucker? You can't take this, how can you take the abuse you get on a sit? You don't like it, leave. "

Charles said...

Anonymous notes: You would see that AQNT was underpriced by the market.

No, at 91 times trailing earnings or 65 times forward earnings AQNT is hardly underpriced. It clearly is overpriced by any metric you can find.

I already generously assumed that aQuantive at $2.7B mcap was a reasonable valuation for Microsoft to pay for aQuantive operations as-is, and I proceeded to provide an apples-to-apples comparison of the extra $3.3B paid by Microsoft (above and beyond the already overpriced mcap of $2.7B) relative to the extra revenue stream derived from aQuantive or US Treasuries. As I said, free cash flow (or discounted cash flow) is one of many valuation methods. However, for the ad-hoc purposes of this discussion, free cash flow provides a back-of-the-envelope reality check that quickly illustrated the huge disparity in what Microsoft paid vs received. Now, presumably someone knew that and has a compelling justification on some other profitable valuation - something better than "OMG! We must catch Google!" - because you don't want to be another $3.3B in the red and still fall further behind Google.

Anonymous notes: Your numbers are based on an assumption that everything remains constant. However aQuantive is growing much faster than Microsoft. The scale of Microsoft should also help reduce costs and bring more money to the bottem line. That $62m FCF could and probably will change a great deal.

Certainly aQuantive is a business that should grow. So let's assume the AQNT business scales up linearly and rapidly (another generous assumption) based on something Microsoft easily brings to the party (low-cost financing, market reach, infrastructure, supplier relationships...).

Let's assume further that the business doubles in the 1st year and doubles again the following two years. So over three years, aQuantive free cash flow goes from $63M to $126M in the 1st year to $252M in 3 years. But we assumed a linear scale up and so the SG&A + R&D to generate that goes from $295M to $590M in year 1 to $1.18B in year 3, and revenues are assumed to scale up linearly as well (to $884M in year 1 and $1.768B in year 3) out of which the scaled up SG&A + R&D is paid yielding the scaled-up free cash flow. BTW, data comes from http://finance.yahoo.com/q/cf?s=AQNT&annual

So, aQuantive free cash flow of $252M in year 3 (assuming a quadruple linear scale-up), results in that extra $3.3B being paid back in roughly 15 years, as opposed to 52. Certainly an improvement, but 15 years is still a very long horizon overwhich to recoup an investment, and quadrupling AQNT operations in the first 3 years is not likely achievable (especially under Microsoft's bureaucracy), but also its growth while leveling off ought not to go flat after 3 years. But best case, a near-exponential growth is required to get that $3.3B payback in 10 years (doubling every other year) or 5 years (doubling every year).

And another notes: Charles, in your calculations the treasury interest is expected to remain the same but AQNT is growing like 50%. Do the calculations again in taking this growth rate into account.

Ok. Note above that even at 50% growth (doubling every other year) profitablity is still 10 years out. Note futher that typically once a company reaches roughly $500M/year in size that 50%-100% growth rates are difficult to sustain, certainly over 10 consequtive years, and that above $1B/year exponential growth for 5 consequtive years is extremely difficult and rare. Sustained growth rates of 15-30% for companies of that size are considered exceptional. But growth rates that achieve profitability (given the high price paid up front) in 5 years or even 10 years are highly unlikley.

High growth also assumes Ad customers cooperate and are willing to do business with Microsoft, that Microsoft can retain them, and that Ad revenues are not pressured by competitive offerings (all significant uncertainties). That all assumes Microsoft can bring something to the party that aQuantive needs and Microsoft can cheaply, if not exclusively, supply without dissipating AQNT's focus or impairing revenue growth (i.e. stay out of its way). Consider: Has free cash flow from Great Plains quadrupled? Relative to Google, why should advertisers have any greater confidence in the viability of Microsoft/aQuantive (recall the blackeye Microsoft has gotten from Office Live and the damage done to those customers). There are several other risks not examined here.

What is presently, actually constraining aQuantive's growth that Microsoft can easily supply? How can Microsoft leverage/exploit aQuantive to significantly improve Microsoft's overall competitive position? Laslty, how will that happen credibly, timely and profitably (that means total revenues exceed total costs, expenditures, depreciation and amortization)?

Whether profitability is reached in 52, 15, 10 or even 5 years (depending on 52-years of flat to 5-years of exponential growth assumptions), a free cash flow analysis gives a quick idea of how stunningly expensive the aQuantive acquisition is.

Anonymous said...

To Jason:

I'm the guy who said "drop the arrogance". After reading your reply, I have to say, "Right on!"

There's life outside of work. If you don't have that, you need to find it. But there's also life AT work, and if it's "just a job", go do something else - something you actually care about.

MSS

MSFTextrememakeover said...

The accounting analysis of AQNT is futile imo - the numbers alone don't work, no matter how rosy the assumptions. To justify the deal you need to buy into what management is telling you: that this will better position MSFT to take some indeterminate share, of some indeterminate sized Ad market, at some indeterminate point in time. If, as Berkowitz said yesterday, that's 10-20% of a $60-80-120B market a few years out, then the math may work. Otherwise it doesn't. Sadly, management's track record in this area is weak, and lack of any defined metrics for this deal doesn't help judge their subsequent success or failure (surprise). It's like you turning in your objectives with the statement "I hope to make some contribution, by being relatively successful, at some point in time -trust me" - except w/o another $B of SPSA bonuses along the way...

Anonymous said...

"Whether profitability is reached in 52, 15, 10 or even 5 years (depending on 52-years of flat to 5-years of exponential growth assumptions), a free cash flow analysis gives a quick idea of how stunningly expensive the aQuantive acquisition is"

Wrong!

aQuantive is already profitable.

The $6B will be a sunk cost and have no barring on future profit.

Did you guys study anything in school? Anyway, what is a better use of the $6B ... buying back 2% of MSFT or buying more than 2% growth for Microsoft?

Charles said...

Anonymous argues: aQuantive is already profitable.

lol - ok. Let's see your numbers that show the acquisition of AQNT at a $6B purchase price as "already [present tense] profitable".

And let's also see your definition of "profitable".

Anonymous said...

The $6B will be a sunk cost and have no barring on future profit.

Did you guys study anything in school?


Interesting concept. An analysis of whether paying $6B for AQNT was a good idea should not actually include the $6B figure because it is already a sunk cost.

I studied lots of things in school, but I guess I missed the class on Three Card Monty Accounting Logic.

Limulus said...

"Ack! As in Ack!quisition..."

To paraphrase Ballmer:

'could Microsoft do whatever it is they're hoping to buy without paying $6 billion?'

(from his snarky comments about Google buying YouTube for $1.6 Billion)

Also, a direct quote from the same article on http://www.businessweek.com/technology/content/oct2006/tc20061011_940241.htm

"every time we do valuations, I wonder if we can afford to keep this hot for 10 years."

Ballmer apparently must think so... of course, Ballmer thinks a lot of things ;)

"Intellectual Property vs. Open Source: what's the strategy here? For the longest time, we've held off throwing punches here because we knew, although there are infringements, it would be costly to wage this battle on the public stage."

And really, what's the point of suing if its going to cost you more than doing nothing? Software patents are a bit like nuclear weapons; when both sides have them, neither side wants to actually use them... Consider that Jonathan Schwartz, Sun's CEO, just stated in his blog:

"Sun has what I'd argue to be the single most valuable and focused patent portfolio on the web (and yes, we'd use it to defend Red Hat and Ubuntu, both)."

http://blogs.sun.com/jonathan/entry/censoring_free_media_or_fighting

Its not really in the interest of any of the big players to wage software patent wars, since both parties will likely get burned badly... so who does it benefit?

Generally speaking, not those writing the code...

There comes a point when you really have to ask, 'Are the existence of software patents even in Microsoft's best interest?'

Microsoft ordered to pay $1.5 billion in MP3 patent lawsuit
http://arstechnica.com/news.ars/post/20070222-8910.html

Judge rules Microsoft infringed on Eolas patent [awards $500 M]
http://news.com.com/2100-1023_3-5141318.html

So there's $2B (though that will probably be reduced on appeal) that MS could have saved if there were no software patents.

The supreme court seems to be moving toward reigning in patents:

http://www.cbc.ca/technology/story/2007/05/01/tech-uspatentsupremecourt-20070501.html

which MS is even helping with:

http://news.zdnet.com/2100-3513_22-6180188.html

So here's a cynical question: can MS actually compete on the quality of its own code, or does it have to rely on FUD and extortion over unspecified patents?

"What changed? GPL3?"

Could be; Groklaw thinks that as soon as GPL3 is out, its game over for MS patent FUD:

http://www.groklaw.net/article.php?story=20070518124020691
http://www.groklaw.net/article.php?story=20070519090322431

Speaking of software patents, I should ask again; does any of this apply outside the US? AFAIK, there are no software patents in Europe. Which leads me back to the Mini's blog post:

"Microsoft and The European Union: how is this going? This isn't just a thorn in our side but rather a bramble growing through our veins. And we hear very little directly from our leadership regarding how this is going and how we expect decisions and outcomes to affect the company."

Here's a single item to consider in that respect; if you haven't seen it already, look at the maps on http://www.xitimonitor.com/en-us/browsers-barometer/firefox-march-2007/index-1-2-3-77.html

As of March, Europe averaged ~25% Firefox usage. Germany had over 35%, Slovenia nearly 45%. I think I can safely predict that by the end of the year there will be at least one European nation has majority Firefox usage.

MS is losing the European browser market in a big way *without* any help from regulators AFAIK.

And I will tell you from my own experience that Firefox on Windows is the same as Firefox on Linux...

Anonymous said...

The $6B will be a sunk cost and have no barring on future profit.


This is not true. The $6B is an investment. While some portion of an investment may be sunk cost, the total investment is not a sunk cost.

Sunk cost are unrecoverable. We expect to get a return for the $6B. A good investment would mean that the total return would be > $6B. Good luck trying to get there!

Anonymous said...

So now that we've overpaid for a bunch of people and assets, does that mean that all the people (and their exec) inside MSFT that were working on the same thing will be fired? I mean they failed right...and as such we had to buy someone. So they should go, no?

Anonymous said...

if we don't make back the $6B from the acquisition, i'd be shocked.

i don't question this move at all. i'm actually glad we're trying something instead of sitting around and continuing to get our ass kicked.

and the $6B number was a direct result of tough negotiations and at least one competitive offer.

get over it folks. we've made about as much as we can from software and it isn't a growth business anymore. not like advertising.

Anonymous said...

"So now that we've overpaid for a bunch of people and assets, does that mean that all the people (and their exec) inside MSFT that were working on the same thing will be fired? "

Do you really think people will be fired? I wouldnt be surprised if a bunch of the non performers become partners. The live search team has four development managers out of which three are partners. A bunch of the devs were previously testers. Given these non performers it is no surprise that our market share in search is in single digits

Anonymous said...

>if we don't make back the $6B from the acquisition, i'd be shocked.

As with any venture its a risk. The part that is most important to Microsoft is keeping the talent at aQu and providing an environment where they can thrive. Success has always been about people.

I suppose that Bunjie worked out ok, so long as Redmond leaves them alone.

And because the company is a Seattle company, that is a plus for MS, culturally anyway.

But I have seen whole development teams up and walk out the door because of a buyout or an ego crossed the wrong way, and I have seen companies fold because of loss of talent due to an acquisition.

Anonymous said...

we've made about as much as we can from software and it isn't a growth business anymore.

Ha, how is it then we keep posting record earnings/profits/etc. despite imploding web/services/advertising marketshare?

Just imagine how well we'd do if we made software that people actually wanted to buy. People lined up around the block at midnight to get a copy of Windows 95. Let's do that again. Instead of this Vista nonsense ("drrr, it looks real purdy") let's give customers features that are actually valuable, or at least improve their existing experience in some tangible way.

Anonymous said...

If you take 10% of your salary and invest it in Apple or Google, you'll make more than if you buy MSFT shares at a discount. Sad, but true.

Limulus said...

Earlier today I wrote: "There comes a point when you really have to ask, 'Are the existence of software patents even in Microsoft's best interest?'"

I just noticed that Mark Shuttleworth, head of Canonical (the company that produces Ubuntu Linux) made a blog post titled "Microsoft is not the real threat" on http://www.markshuttleworth.com/archives/118

An extract:

---
Much has been written about Microsoft’s allegation of patent infringements in Linux [...] I don’t think Microsoft is the real threat, and in fact, I think Microsoft and the Linux community will actually end up fighting on the same side of this issue. I’m in favour of patents in general, but not software or business method patents. [...] I’ll just state for the record my view that software patents hinder, rather than help, innovation in the software industry. And I’m pretty certain that, within a few years, Microsoft themselves will be strong advocates against software patents. Why? Because Microsoft is irrevocably committed to shipping new software every year, and software patents represent landmines in their roadmap which they are going to step on, like it or not, with increasing regularity. They can’t sit on the sidelines of the software game - they actually have to ship new products. And every time they do that, they risk stepping on a patent landmine. They are a perfect target - they have deep pockets, and they have no option but to negotiate a settlement, or go to court, when confronted with a patent suit. Microsoft already spends a huge amount of money on patent settlements (far, far more than they could hope to realise through patent licensing of their own portfolio). That number will creep upwards until it’s abundantly clear to them that they would be better off if software patents were history. In short, Microsoft will lose a patent trench war if they start one, and I’m sure that cooler heads in Redmond know that. [...] Microsoft is not the real patent threat to Linux. The real threat to Linux is the same as the real threat to Microsoft, and that is a patent suit from a person or company that is NOT actually building software, but has filed patents on ideas that the GNU project and Microsoft are equally likely to be implementing. [...] We need to get consensus from the industry - including Microsoft, though it may be a bit soon for them - that software patents are a bad thing for society.
---

Note where Shuttleworth said "a few years"... Is that when Gates and especially Ballmer are gone? Will that mark the end of "the bad, old Microsoft"? (as Paul Thurrott put it on http://www.winsupersite.com/reviews/winvista_5308_05.asp)

"the Microsoft that ran roughshod over competitors in order to gain market share at any cost. The Microsoft that forgot about customers in its blind zeal to harm competitors. The Microsoft, that frankly, all the Linux and Apple fanatics always imagined was out there, plotting and planning their termination. The Microsoft that threatens Windows fans with needless legal threats rather than reaching out and creating constructive relationships with the very people who prop up the company the most."

One can hope :)

Anonymous said...

Regarding T.Higgins' comment on Wednesday, May 16, 2007 8:29:00 PM (that Mini talked about in the post):

Mr.T.: I pity the fool who thinks he's worth more than a new college grad just because he's been here for 8 years. I'm sure you have a dozen reasons in your mind why you're invaluable for the company.

You know what? I did the kind of job you do a while ago. It's not that hard. In fact, I could do your job with a hand tied behind my back, any time. Stop inventing reasons why you're such a critical cog for the machinery. Everyone is.

Anonymous said...

It is really quite humorous to watch all you technical people try and validate the ridiculous price paid for this acquisition.

I used to work in M&A and let me tell you, there is NO reasonable support for this valuation - it was a totally we have to do something before everyone is bought move - classic MS reaction not grounded in any business fundamentals.

More power to the folks at AQNT - they made out like bandits on this deal, even making the absurd payout of our CSPA program seem like peanuts. Oh, and shall I mention that NO acquisition MS have EVER done met the orinial financial targets set out when justifying the purchase price. Read that again folks - NONE.

The lack of business acumen at the highest levels of this company is just stunning.

Anonymous said...

wow. its amazing at home much people can babble without knowing anything about the online advertising space. even though i too was surprised at the acquisition price, i chalk up most of this blather to MS haters and google shills. people who under stand the space recognize that there is significant value in this acquisition, and the course of the online services group - while competing head to head with google and yahoo - includes strong differentiation. IMHO, if we had been successful in acquiring doubleclick, we STILL would have purchased aQuantive, and we still would have paid more for them because of the strong IP that comes with them. as for the 2600 employees, it also causes me to grimace, but you know as much as i do that many of those folks will leave on their own or through "healthy attrition" due to duplication of roles in existing MS groups. overall, i am excited by this acquisition because it doesn't just help us achieve parity in our feature set, but helps us dramatically advance in our long-term plans.

Anonymous said...

Increase in Size is directly proportional to loss of Accountability. Has anyone rapped SteveB for all those bad decisions made by execs under him? Acquisitions are just a sign of the fact that MS cant use its manpower efficiently. The underlying reason being bad leadership.
MS is a dev powerhouse and it should be run by strongly technical people. You cannot run a tech business this huge with MBAs at the top. Selling software is not the same as selling soap.
Look at RTC, a definite success because the leadership has grown through the technology ranks. The business works inline with technology and hopefully isnt being unrealistic in their demands.

Anonymous said...

Charles you wrote,

"So, aQuantive free cash flow of $252M in year 3 (assuming a quadruple linear scale-up), results in that extra $3.3B being paid back in roughly 15 years, as opposed to 52. Certainly an improvement, but 15 years is still a very long horizon overwhich to recoup an investment..."

Charles, you realize that the original asset "AQNT" has also gained in value in this three years. Even the dumbest anaylyst will tell you that a company which doubled its business in past three years straight would deserve a P/E of at least 40.

By the numbers you have assumed, after three years AQNT would be valued at $10B. We paid $6B. Profit of 67% in three years is no joke.

If you have a house and you rent it out. You are never going to make any profit until you account for the value of the asset itself, i.e., the house. This is the magic of P/E.

That's why I earlier wrote both you and Mini have some strange notion of profitability.

Anonymous said...

"The lack of business acumen at the highest levels of this company is just stunning."

And now tell me something I don't know. Children in a candy store, well beyond their competence thresholds and absolutely unaccountable. Must be SO much fun!

Anonymous said...

Talking abt acquisitions, have people forgotten 1.1B Great Plains in 2000. I guess the only person walking to the bank with a smile on his face was Mr.Burgum.The only time we ever saw Mr.Burgum on main campus was when he turned up for the MBS meet and greets. The key takeway from those was, "we need to downsize". I would really be interested in knowing his review goals. Where are the huge profits promised by MBS, 7 years after that acquisition?

Anonymous said...

"Even the dumbest anaylyst will tell you that a company which doubled its business in past three years straight would deserve a P/E of at least 40."

And you think it will achieve that as part of MSFT with its 9B shares and 20X multiple how exactly?

Anonymous said...

"Children in a candy store, well beyond their competence thresholds..."

This is the Peter Principle.

Anonymous said...

"Where are the huge profits promised by MBS, 7 years after that acquisition?"

Those didn't materialize. Neither did the ones from MSN, IPTV, Xbox, Search and Advertising, etc. So we took the ones that came from Windows, Office and Servers and used them to launch more of these while paying the executives responsible big fat bonuses. Meanwhile, we took our eye off the ball in those core areas. So now we have to overspend there too to maintain our leadership. Smart huh?

Anonymous said...

"I studied lots of things in school, but I guess I missed the class on Three Card Monty Accounting Logic."

Thank you for proving my point. Just google "sunk cost" maybe you'll learn something you should have learned in school.

Charles said...

Anonymous argues Charles, you realize that the original asset "AQNT" has also gained in value in this three years. Even the dumbest anaylyst will tell you that a company which doubled its business in past three years straight would deserve a P/E of at least 40.

I showed in my assumptions a quadrupled revenue and commensurate quadrupled costs. I assumed a linear scale up. But the question remains what valuation method is used. You seem focused strictly on stock price and P/E. Those are not 'valuation methods' and they indicate nothing quantitative about profitability - just what traders are willing to pay and what they expect 'the greater fool' to pay next trade. But now that aQuantive has been aquired, for all practicle purposes there is no next trade. AQNT will approach Microsoft's buyout price.

But aQuantive hasn't "doubled its business in past three years straight" nor is it likely to in the next three years: Rev for '06, '05 and '04 respectively was $442.2M $308.4M and $157.9M Last years growth hasn't doubled and its growth rate is slowing, as even the best companies do when they reach $500M and $1B. But regardless, prior to the annoncement AQNT TTM P/E was 48.93 (already overpriced above 40) on top of which Microsoft then paid $6B to bring aQuantive's ttm P/E to 90, overpriced by any defintion.

By the numbers you have assumed, after three years AQNT would be valued at $10B. We paid $6B. Profit of 67% in three years is no joke.

Except that aQuantive is now a division of Microsoft and its financials and stock will no longer be marked-to-market and they will be merged and buried under some other division so there is no basis whatsoever to assume a market valuation of $10B.

But let's suppose Microsoft sets up a tradeable derivative for AQNT and continues to report aQuantive financials. So, "by the numbers [I] assumed" (a linear quadrupling in 3 years), Net Income Avl to Common (ttm) would go from $60.58M to 121M to $242M for an EPS of $3.066 and assuming the 'market valued' the AQNT derivative at $10B as you assume, that would be a ttm P/E of 126.71/3.066 = 41.32.

So in 3 years, using your assumed 'market value' and quadrupled earnings, AQNT's P/E of 41 will have fallen by half from its current 90 set by Microsoft's buyout price. In 3 years the P/E will have fallen by half but even a quadrupled FCF will have recovered not quite 10% of the extra $3.3B spent to 'buy' it.

What does that tell you about the price presently paid?

If you have a house and you rent it out. You are never going to make any profit until you account for the value of the asset itself, i.e., the house.

Agreed. And that profit is after deducting costs (such as purchase price) from the marked-to-market value. But unlike a house, Microsoft won't be selling aQuantive in 3 years, now will they. Unlike rental proptery that can be sold, aQuantive won't be sold and the only way Microsoft will recoup its purchase price is on cummulative monthly profits in excess of cummulative costs - ie, free cash flow, which as previously noted will take anywhere from 52 years (unrealistic worst case) to 5 years (unrealistic best case).

This is the magic of P/E.

As shown, the "magic of P/E" on which you have relied doesn't really affect profits unless you're speculating on price moves in the open market, which is not what acquisitions are about. Acquisitions are about leveraging an assets strengths to generate a profit greater than it could alone, and preferably better than what US Treasuries were paying.

Anonymous said...

Thank you for proving my point. Just google "sunk cost" maybe you'll learn something you should have learned in school.

Are you the one who said the $6B is a sunk cost? It's not.

Jayde said...

" I left as level 63 and made back then about $115K a year. I left because I got an offer (that most people at MS could get but just don't try) of about $180 a year."

This particular phrase has been bugging me since I read it.

While this is a nice thought, but, it doesn't cover everyone at Microsoft. We aren't all PMs. I was laid off 2 years ago Dec and frankly, I haven't found crap out here in the real world. And, as a diabetic, health plans *suck* except for what I got back at MS.

The best thing I've gotten out of being laid off is the consistent comments I hear of 'We wish you were back doing what you did here because no one has ben able to do it since.' (I was the newsgroups admin and a measly little L58.)

Charles said...

Anonymous persists in arguing The $6B will be a sunk cost and have no barring on future profit.

A "sunk cost" is an unrecoverable cost when the asset can't be resold or varied; e.g. insurance premiums are "sunk costs" in that you can't resell an insurance policy and recoup premiums paid. Boeing recently built a fleet of 3 large cargo freighters designed to ferry 787 Dreamliner assemblies around the globe. That is a "sunk cost" because only Boeing can use them: there is no resale market for planes designed to ferry 787 Dreamliner assemblies.

But like with insurance premiums or Boeing's LCF fleet, their costs are part of an investment which overall is expected to yield a profitable return. The revenues from the 787 Dreamliner are expected to recoup the costs of the LCF fleet. Likewise the cummulative future revenues generated from aQuantive's assets should exceed their purchase price at some point, the question is merely when?

The $6B paid for aQuantive is not "sunk". It has saleable assets (IP, customer base, revenue streams, etc) previously valued by the market at $2.7B that would be desired by other companies. Those assets have not deteriorated nor been depleted. I suspect that after pocketing Microsoft's $6B that aQuantive shareholders would happily buy it back for say, $2.7B, thus keeping their company as-is plus an extra $3.3B of Microsoft cash. The alleged other bidders for aQuantive would want it, albeit not a $6B so the extra $3.3B Microsoft paid is arguably lost, but a loss on liquidation doesn't mean the asset was a "sunk cost".

Further, a "sunk cost" is not "zero cost" and "sunk costs" don't disappear, they are not free, they are either expensed or amortized and hit the balance sheet which means they reduce shareholder equity. When net "sunk costs" exceed revenues, that is unprofitable. When net "sunk costs" exceed revenues and also assets, that is bankrupt. Above all, you don't ignore them and you take steps to preserve/restore the balance sheet. Negative ROI is not a business goal. No one (in their right mind) pays X for an asset and expects to get less than X return on that asset.

Because sunk costs (like all costs) are either expensed or amortized, the book value of the item purchased goes to zero (immediately if expensed like an insurance premium) or over time (if depreciated like a fleet). If the revenue generated from the asset does not exceed the cost to operate the asset plus the depreciation, then the operation is unprofitable. It's sortalike a taxi-driver who buys a $27,000 cab on eBay but pays $60,000 cash (his life savings) overbidding by $33,000. He charges $4,900 in fares but gas & fees cost him $2,950 and after all expenses he takes home $630/year (FCF). His accountant will depreciate the cab straight-line over 5 years at $12,000/year (which already exceeds revenues - great tax write-off but unprofitable). At the end of 5 years he does not have his $60,000 life savings, the cab has been depreciated to zero book value, and his accummulated takehome pay is $3,150 - a net loss of $56,850. There is a resale market for used cabs, so its purchase was not a "sunk cost", but even if you insist on calling his purchase of the cab a "sunk cost", he is still technically bankrupt.

The difference is aQuantive is not a sunk cost (and regardless even "sunk costs" figure into profitability and accounting), and aQuantive didn't pay $6B or even $2.7B to own their $63M FCF - which is why they were profitable but Microsoft's profitable ownership is questionable.

The good news is, unlike the taxi-driver, Microsoft has another some $27B in reserve to "sink" into future "profitable" adventures.

Anonymous said...

Gate is more responsible than Ballmer for the fiasco. He didnt develop competent leaders. He had idiots like Allchin and Veskivich live without accountability

neo man said...

" I left as level 63 and made back then about $115K a year. I left because I got an offer (that most people at MS could get but just don't try) of about $180 a year."

This particular phrase has been bugging me since I read it.


Well your unemployment pays a lot more than $180 a year!

Okay so the guy meant $180k. Well it probably isn't true. I was out looking not long ago, and there is huge resistance to paying more than $100k, let alone $115k, at least in the Seattle area. I know at a lot of companies, VP's don't even make $150k.

Now the guy might be counting stock options at some projected price, or something like that. Sometimes that pays out.

As for the health care, you don't find out how bad it is until you really have to use it. I thought I was fully covered and I was having to pay about $300 a month for it. That was with $450/year deductable and 10% copayment. Well when I ended up with a child in the hosiptal it cost an additional $4k one year about $3k the next. Compare that to Microsoft. Microsoft health benefits rock!

Anonymous said...

Charles, you are still not getting the point though you see the argument.

In your house case you see the argument. Whether you sell your house in three years or not, the value of the house will be counted in your net worth. In case you need money on a rainy day then you could sell your house.

Similarly whether Microsoft sell AQNT or not, if its profits doubles straight in three years and reahces $250M, then at least $10 B will be reflected in Microsoft's net worth, i.e., market cap. Since Microsoft has a lot of lower growth business, so overall a tiny business doubling every year will give only a tiny boost to Microsoft P/E. But that tiny boost will be on a profit of $15B and not $250 M, so overall that tiny boost will add the fair value of AQNT, as if Microsoft sells it at its fair value ($250 M, 100% growth for three years > $10 B).

Regarding the magic of P/E, it is just like compunded interest.

If you promise to pay me $1 every year, then it is worth about $20 to me in today's value. If you promise to pay me some years $2 and some years $0, then it is worth about $20 - risk premium, which in today market is like $12.

If you promise to pay me $1 today. And 20% more year after year for forseeable future (about 5 years). Then it is worth about $30 to me. With risk premium, it is about $22.

If you double $1 for the next three years and it is worth $160 to me.

That's all. You think speculation does not have any math? Speculation is when you said, let is assume AQNT doubles its profit for the next three years. When this speculation is made, AQNT will be worth more than $10 B after the next three years.

Either take back your numbers or see the math. Do not P/E as if it is something irrational. It is yours notion of profit which is strange. Profit must take into account the increase in the worth of the underline asset.

Anonymous said...

A "sunk cost" is an unrecoverable cost when the asset can't be resold or varied; e.g. insurance premiums are "sunk costs" in that you can't resell an insurance policy and recoup premiums paid.

This post is awesome. What a smack-down. Wow.

Anonymous said...

I was out looking not long ago, and there is huge resistance to paying more than $100k, let alone $115k, at least in the Seattle area.

Agreed, that's consistent with my experience (L63 SDE). Once you factor in the few grand from stock and occasional bonus, even measly ones, the salaries at msft are pretty damned good in the Puget Sound area. I was lucky and bought my house in 1999 when I moved here, so I have zero complaints about the numbers. Coupled with working on software that is run by hundreds of millions of users, I really don't see what all the complaining is about.

Sure, too much process, disproportionate rewards, and some boneheaded exec decisions. Is there any company which doesn't have this? If you think MSFT is so bad, go look around elsewhere, a lot of these smaller outfits are jokes run by hucksters staying one step ahead of the VCs and creditors. If you still think MSFT sucks, maybe you just need to be in a better group. It's a damned large company (yes, too large in some areas, no debate here) with lots of different teams for the choosing. If your manager/GM/PUM sucks, move somewhere else.

Charles said...

Anonymous conflates future net worth with profit: Whether you sell your house in three years or not, the value of the house will be counted in your net worth.

But "value" according to whom? Garp or GAAP?

Rephrasing your point as I undertsand it: Whether Microsoft sells aQuantive in three years or not, the value of aQuantive will be counted in Microsoft's net worth.

Correct. But what value and when?

Financial statements are not business plans. Financial statements comply with standards like GAAP, whereas business plans are speculative, and Microsoft's highly so. Costs, liabilities, revenues, profits and earnings are based on finanical statements. The price someone might be willing to pay (the 'P' in P/E) is largely speculative whereas the earnings (the 'E' in P/E) are expected to be GAAP standard and present value.

Similarly whether Microsoft sell AQNT or not, if its profits doubles straight in three years and reahces $250M, then at least $10 B will be reflected in Microsoft's net worth, i.e., market cap.

The error here is the presumption that just because Microsoft paid $6B for aQuantive it therefore has a $6B net worth. It doesn't.

There is some justification by accounting standards to accept a $2.7B "net worth" because a liquid, transparent and independant market marked it as such. But Microsoft paying an additional $3.3B does not change its net worth one iota. aQuantive's net worth changes as it accummulates profits, liabilities, revenues streams, customer base, etc. A companies size is generally 'measured' by revenues, not market cap. Whoever closes the last trade on a stock sets a companies market cap on that day. If I am willing to pay 10x for 1 share of AQNT at the close, then AQNTs mcap will increase 10X all because of my one trade. Those kinds of perturbations are less with revenue streams, though you can get issues with deliberately pushing or pulling large sales into or out of a quarter to affect revenue stability.

When Microsoft bought aQuantive, $6B cash flowed out of the company and off the balance sheet and a $2.7B asset came into the company and onto the balance sheet and a $63M ttm FCF (and greater future earning potential) came with it. There is no two ways about that. Now, Microsoft might wish to record the value of aQuantive as $6B (perhaps footnoting a $3.3B increase in goodwill - I don't know). But there is no justification to presently record aQuantive's value as $10B - that is a "future value" consideration belonging to speculative business plans and not financial statements on which earnings (the 'E' in P/E) are based.

To use your house analogy, if I pay $600,000 for a house that all the comps show was worth only $270,000, that is my prerogative but when I try to sell that house, the comps will dictate what I can expect to get. Now I can claim my house has special upgrades and appreciated more than my neighbors', but I'd have to show why they weren't reflected in the comps. On a personal basis I can inflate my networth with an inflated value for my house however I like, but future buyers and/or my bank will regardless scrutinize the actual worth of the property based on more independent (possibly even audited) valuations. Public companies don't get that latitude (theoretically - lol), they (i.e. their auditors aka accountants) are supposed to comply with GAAP standards, quarter by quarter.

But that tiny boost will be on a profit of $15B and not $250 M, so overall that tiny boost will add the fair value of AQNT, as if Microsoft sells it at its fair value ($250 M, 100% growth for three years > $10 B).

In what bizzaro world do you leap from an mcap of $2.7B to $6B or a $250M profit and translate that into a $15B profit?

If you promise to pay me $1 every year, then it is worth about $20 to me in today's value.

Well isn't that just special. But you don't get to claim you're in possession of $20. It doesn't figure into your networth until I've paid it to you. It isn't networth, revenue or profit until it actually happens. What you call networth is more like nethope.

If you promise to pay me $1 today. And 20% more year after year for forseeable future (about 5 years). Then it is worth about $30 to me. With risk premium, it is about $22.

More (questionable) future value computations that are fine for internal business plans but have zero bearing on financial statements or present day profitability and valuation. You aren't actually profitible until that money materializes. You can plan (hope) on it, you can evangelize your plan to analysts of what a rosy future you have, but until the revenue actually arrives to overcompensate for the inflated prices paid it is nether profit nor networth. You can even persuade the market to grant you a higher P/E, but that is because you persuaded some greater fool to up the 'P' while the 'E' hasn't changed. And at some point you'll have to show the world from where that "$30 worth" or $15B profit" materializes.

If you double $1 for the next three years and it is worth $160 to me.

You're the guy who advised Ballmer on this acquisition, aren't you.

Anonymous said...

Sunk costs, schmunk costs. That's all well beyond my meager financial knowledge.

Here's what I wanna know, though. aQuantive does a lot of business via Google, no? That is, they funnel customers to Google, to "market" those customers. Google makes money, aQuantive makes money. What percentage of their revenue comes via Google?

I ask, because how much you wanna bet some big genius at Microsoft (ohh, I dunno, maybe Balmer?) will tell the newly acquired gang that business with Google will henceforth cease, and it will all be pushed through Microsoft Search or Live or whatever it's called at the moment.

Following which, customers and prospective customers of AQ will say "what the hell? we want Google," and they will bolt. Because it doesn't take a genius to know that you're going to sell more through Google than through Live. Sales will drop like a rock, and all your sunk costs and valuations and what all dry up and blow away.

What's the alternative? That a Microsoft-owned company continues to funnel all kinds of business to Google? Yeah, THAT'S gonna happen!

Anonymous said...

Thank you for proving my point. Just google "sunk cost" maybe you'll learn something you should have learned in school.

I hate to distract you when you're so busy making an ass of yourself, but the point is that "sunk costs" are not sunk until after the deal is done. You can't ignore them when evaluating the deal, and if you pay $6B for something that's really worth $3.3B, you still overpaid by $2.7B no matter how fast you shuffle the paper.

Sunk cost indeed.

Anonymous said...

RE: Great Plains acquisition
This was my first thought when I heard the news. Looking back at the market share that was being targeted, I think Microsoft just didn't follow through. (Due to political/judicial reasons.) If MS had played hardball and locked out other ERP systems as it did in the past with other competitors, GPS might have +50 market share now. What ended up happening has been a lot less interesting, more of a Mini-Longhorn fiasco than anything else.
I think the above poster has it right about feeding $ to GOOG, will aQuantive still be allowed to do that, or will it lose 70-80% of it's customers now, as part of the empire? (What one should really be investing in is a middle-ware generic Ad-management platform, which can interface with all the big names, but can use them interchangeably. Customers are getting smarter and smarter about lock-in, and I think that's one of the main factors in the stagnant stock price.)
PS. Enough about sunk costs already! Mini, let's see a thread-kill on that.

Limulus said...

Here's something to keep an eye on; Dell is now selling consumer systems with Ubuntu Linux preloaded. See:

http://www.ubuntu.com/dell
http://www.dell.com/ubuntu

They are all cheaper than their Windows counterparts with the same hardware by at least $50.

The biggest difference in price is on the low-end system; the Windows-based Dimension E520 without a monitor (you have to select that option) is $549. The Ubuntu-based E520 N without a monitor (again, selecting that option) is $409. So $140 less, a 25% savings.

Anonymous said...

If all divisions had to pony up open and bubble headcount to absorb employees of aQuantive.

Our group's headcount for FY08 includes a growth factor for our whole division of 1.5%. Bloat isn't coming from our direction.

Anonymous said...

To the poor aQuantive employee feeling unwelcome after reading posts here:

Don't take it too seriously. This is a blog devoted to making Microsoft smaller; we'd complain about an acquisition of 2,000 employees even if they were all super-geniuses carrying big carts of gold bars. People commenting here aren't going to be too happy about it.

Microsoft is so big it varies a lot from team to team. Personally, I've found that joining Microsoft's online services division brought me a substantial salary increase (15%, though my previous employer was admittedly underpaying and bleeding employees like crazy as a result) and a pleasant working environment where performance is expected but the rampant workaholism that plagued Microsoft in years past is not. It's not all bad by any means.

This said, it's not all good, either. The stock's not a good investment (and may never be), the review process is schizophrenic (we can't decide if we're a company of stable, career engineers or genius workaholic alpha males, so we end up pleasing neither), and the fastest way to move up the salary scale is still to quit for a year and come back at a higher level.

But all told, I'd worked at Microsoft in the past and knew exactly what I was getting into, and when I left my last employer I still picked the Microsoft offer over 5 others. There are worse places -- lots of them. And not everyone is negative on the aQuantive acquisition -- while I wouldn't have paid $6B for it, I think there's substantial growth opportunity there and that the world at large substantially underestimates the future importance of online advertising. Microsoft has certainly made worse buys.

Anonymous said...

and when I left my last employer I still picked the Microsoft offer over 5 others.

What still makes MS the one special place one would come back to? If Google and MS both offer you the same job with the same "compensation package", which one would you pick?

Same goes with Oracle offer vs. MS offer, and Adobe offer vs. MS offer. Why is MS still your super choice?

Anonymous said...

Lisa's throwing in the towel (well, not those towels) on the InsideMS blog. On hold until a more constructive forum is found and she won't be reading any more comments.

Of course comments are still open on her last post...

Anonymous said...

Is there life after 63? I've been in MS 9 years, half of them screwed in a tiny sub with the same level and the rest in redmond. I've had promotions up to 63 every 18 months (after coming to Corp), while the 64 is getting harder I't seems like a place I'll be after quite a while specially as I.C. not interested in managing people, Director (65) seems very very distant. So my questions for those in a similar situation, what's one to do? Just stay in 63/64 forever switching teams to not get bored? Find a Director level position in a BS and not very competitive team just for the level? Thoughts?

Anonymous said...

"On hold until a more constructive forum is found and she won't be reading any more comments."

That's all right, there's always here and a million other places on the Internet.

Funny, you'd think that an exec from a technology company would have figured out that communication between tech-savvy people can't be suppressed. The most she can hope to do is to channel or shape it towards productivity, correct any misinformation as it comes up, and keep as much as possible inside MS (hmm, subtle double entendre on Lisa's part?) to avoid public embarassment.

I hope she at least read and took to heart the on-topic posts.

Anonymous said...

I hope she at least read and took to heart the on-topic posts.

Seems pretty petty of her to claim the high ground now, after rarely ever replying to anything anyone posted or appearing to notice responses in her subsequent posts. Any wonder that people got frustrated and started spewing junk?

There has been lots and lots of constructive, on-point, substantive commenting on that blog (though why people bother is a good question) and she has systematically ignored just about every bit of it. No mention of people's honest and realistic questions of her when she's posted new entries. No mention of the influence of people's suggestions or concerns when she rolled out MyMicrosoft 2.0 (uh...yeah, well 1.01 or whatever you want to call it).

Now she complains that it's just degenerated into a mess. Well, honey, if you're not going to pay attention to the kids or listen to their concerns after setting them up to expect that, then you get what you get. Take some of the responsibility - act like an adult, for gads sakes.

I know, I know - what did I (or anyone else) really expect? I guess more than I let myself think, because now I feel just as cynical about Lisa as the rest of them.

(BTW, did anyone else cringe at her interactions with Steve at the Town Hall? Pllleeeeeease, could we not play toesies in front of the masses? I don't mean literally, but you could practically see them fawning each other. BLECH. No wonder she can't make any headway. Lap poodle came immediately to mind. (Hey, I hear there'll soon be an opening in London for a lap poodle. Oh, wrong blog.))

Anonymous said...

I'm not looking forward to having to work with Microsoft employees. From what I've seen, all you do is bitch about your jobs.

We ship software, alot of it, and hardly ever have to work more than 40 hour weeks. And our products are highly reliable and actually work.

I don't look forward to having a bunch of Microsofties working on our products, bitching about our processes, because thats all you guys seem to do, I'd put one of our offshore developers against 10 of yours, attitude is everything. Your egos are sickening.

So if you don't like what you get paid and how things work, why do you work there? Get the F out then, because your a parasite who's ruining a company, and making life miserable for the people who have the misfortune to work with you. I despise the people that whine about everything and don't leave. No one is forcing you to work where you do, but you like to complain.

We won't make back 6 billion with people like Mini working on our products. Agile is why we're so successful, and XP only works if you try to make it work. Theres one guy on our team with a Mini attitude, thinks he's so valuable for having 30 years experience but he can't perform worth a squat cause he has it stuck in his head that Agile is stupid. People who complain about everything suck the life out of teams, and you are that kind of person, Deadwood that deserves to get burned.

From everything I read here, and elsewhere from Microsoft employees, you only kick and scream like donkeys and you're all talk, no show.

I believe in offshoring talent, even if they're less skilled, they don't bitch about everything under the sun, and can get things done. They have great attitudes and don't cry like babies about their salaries even though its 1/10 of yours.

What makes our company great is teamwork, and positive attitude, and Microsofties, all I see here is attitude, the bad kind. Its just like in life, if you think negatively, you get what you think, and you think your company is so aweful to work for and broken, guess what, IE7 is broken, office is broken, your OS is unreliable.

One thing good about the aquisition, it will be one if the few pieces of microsoft software that actually works.

If Microsoft actually learns from us how to develop software, that 6 billion will be made back in a short time, but Microsoft doesn't have the attitude to do what we do.

Anonymous said...

Great stuff, mini. Yer baaacck! Humor at last!

To wit:

"we'd complain about an acquisition of 2,000 employees even if they were all super-geniuses carrying big carts of gold bars. People commenting here aren't going to be too happy about it."

And what is the peace offering in return?

"you only kick and scream like donkeys and you're all talk, no show." (Ack. . . Ack, ack)

No shit! Welcome to Bitch About Anything Inc. (including your post).

Re picking on our beloved Mini, (don't you slap him like that!) he's the hero of the world of bitch but usually CRF's or bit-bucket's all the good stuff (i.e., super-crass stuff), Welcome to Microsoft, from a sorta-customer--oh and I agree about the reliability issue, especially if you are talking about things like WGA, DRM and security).

Or this jewel:

"I believe in offshoring talent, even if they're less skilled, they don't bitch about everything under the sun, and can get things done. They have great attitudes and don't cry like babies about their salaries even though its 1/10 of yours.

What makes our company great is teamwork, and positive attitude," [!Partner-troll alert!]

After your offshore employees bend over for you, financially that is? Rolling on.

"PS. Enough about sunk costs already! Mini, let's see a thread-kill on that."

Damn straight.

"$6B cash flowed out of the company and off the balance sheet and a $2.7B asset came into the company and onto the balance sheet"

And Charles is baaacck too, in full form. Go Charles! I couldn't have said it better myself.

Could somebody explain conflate to me? I'm too busy bitching to look it up.

Anonymous said...

Now that someone's brought it up, let's talk about something practical.

he can't perform worth a squat cause he has it stuck in his head that Agile is stupid.

Our group has a few of these people. Their estimates are stratospheric, their teams eat headcount like candy, it takes forever for them to complete something, and when they give it to us, it's not what we asked for and mgmt 2 levels above that has both us and the non-agile team under them tells us that we'll just have to compromise on this solution that doesn't meet our needs because it's already paid for.

Have you had a similar experience at Microsoft? How have you fixed this brokenness?

In our situation, agile is a hard sell, because we're in one of the "traditional" divisions of Microsoft. AKA, the ones who believe that excessive mounds of paper and visio diagrams are the way to prove that we've done our design homework, should a corporate customer ask for us to prove how solid and "non-cowboy-designed" our software is. The perception is that agile = chaotic and "cowboy", rather than agile = adaptible and lean.

In my own experience, I've seen massive multi-year waterfall screwups, whose problems waterfall hid until millions had been spent, saved with agile techniques. But since this happened outside of Microsoft, it doesn't count. And since I'm a level 61 (SDET), it's assumed I don't know what I'm talking about even though I worked as an SDE for years prior to joining MSFT.

Can anyone share some hints, other than the obvious one regarding 'get thee out of test'?

Anonymous said...

I'm curious to know how the majority of Msoft developers react when they're pulled out of their waterfall, develop in isolated little offices mode and into an XP/agile environment.

I'm assuming most developers would freak. could they develop without their QA orgaization?

having an xp/agile group and a non agile group would never work! But Atlas has software that has your traditional dependancies, i.e. shared code that forces two teams to release at the same time.

What we've done and continue to improve on is complete isolation of dependancies which involves using a couple simple patterns, dependancy injection and inversion of control. That allows us to ship software weekly. Sometimes features have to be disabled until another teams stuff is ready.

Having two teams being dependant is a nightmare and software will be a deadlock victim. Management might throw a feature out. Its up to the customer to divide up features into smaller releasable pieces. A feature can always be devided into smaller pieces.

It took us at Atlas some time to figure out XP. To me, Agile is all about attitude, desire to get Visible shipable results to the customer in a very very short time frame. HOw that would work on microsoft products like Vista or Office.... through pain.

I don't think microsoft developers would have the attitude to take on Agile and try to make it work, it would feel like jumping off a cliff. And they would jump back to waterfall.

I have a great deal of empathy for anyone still in waterfall, I feel for you. All that time and effort and QA and in the end it just gets thrown out.

Anonymous said...

"You're the guy who advised Ballmer on this acquisition, aren't you."

Charles, well the numbers of AQNT doubling for three years and reaching $250M are written by you. Go back and read the thread. You wrote thess number and said, even with such numbers AQNT acquiring AQNT is stupidity. All I was explaining to you is the mathematics.

Yes, if you give me a transferable certificate that you promise to pay me a $1 every year, I can sell that certificate for $20. So this certificate has a worth today itself. This is what cash-flow analysis is. This is how valuation are measured. If I guve you $10 to acquire this certificate from you then I have already made a profit of $10.

All I am arguing is your stupid math. And I win because you have started questioning your own numbers.

I will challenge anybody who says that assume AQNT profit doubles in the next three years and still it is bad play at $6B anyday. In fact, in plain word I will call such a person, "naive".

Charles said...

Anonymous deceitfully and disingenuously pretends: Charles, well the numbers of AQNT doubling for three years and reaching $250M are written by you. Go back and read the thread. You wrote thess number and said, even with such numbers AQNT acquiring AQNT is stupidity. All I was explaining to you is the mathematics.

Ah but your actual words were: "But that tiny boost will be on a profit of $15B and not $250 M," You dismissed my $250M and substituted your own $15B profit. Your math, not mine.

But I'll grant you that ACNT acquiring itself for another $3.3B in excess of its market cap would indeed be stupid.

Yes, if you give me a transferable certificate that you promise to pay me a $1 every year, I can sell that certificate for $20. So this certificate has a worth today itself. This is what cash-flow analysis is. This is how valuation are measured. If I guve you $10 to acquire this certificate from you then I have already made a profit of $10.

No, neither I nor aQuantive have provided any such 'promise to pay' future revenues and absent such that is not how valuations are measured.

You err, grieviously, yet again when you presume "a transferable certificate that you promise to pay". aQuantive's customer base has executed no such 'promise to pay' future revenues or even made long-term, binding commitments to use aQuantve serices. To my knowledge, and I suspect yours as well, there are few if any 3-year contracts, and no 5-year or 10-year contracts on aQuantives books, but even should there be a couple, those revenues are not bookable as income and do not figure into earnings.

Without a legally enforceable contract between a seller to provide and a buyer to pay, there are no future revenues that qualify under GAAP for inclusion on financial statements, hence into the 'E' in P/E.

Future revenue streams are reflected in financial statements only when a legally enforceable agreement for a seller to provide specific future goods and services and a buyer to pay specific future monies is in place. I.e, money must legally be "owed".

E.g., in real estate, rental income from a 99-year lease on land and buildings may be booked as a long-term asset, but it is amortized annually because there is a contingency that the buildings and land remain available to the tenant in exchange for the rent, so there is an offsetting long-term liability against the long-term asset. Even signed government contracts can't be booked as revenue because they are typically "indefinite-order, indefinite quantity" in which no specific quantities or times were set - just the prices and products are locked in, should the government actually call up and place an order.

Similarly, a 5-year maintenance & support contract may be booked for its entire value, but again the contingency that updates, fixes and tech support be provided in exchange requires the contract value be amortized annually or quarterly. Even in the case where the entire amount is paid up front, it is not booked as revenue in the quarter sold but is held as deferred income with an offsetting liability and amortized quarterly as the contingencies are fulfilled. Should the vendor fail to fulfill a contract condition the entire contract amount might be refundable to the customer (this is the likely reason Vista was pushed out - to fulfil the condition to provide the next OS within the agreement time frame (expiring late '06 or early '07?) for enterprise Software Assurance customers).

In the case of aQuantive, I'm reasonably sure there are no 5-year or 10-year contracts, and even so they would amortized quarterly. So even if aQuantive's customer base had committed to paying for 10-years of service up front, it can't be treated as present value income (except for the present quarter wherein the present contingencies have been fulfilled). Further as is the likely case, aQuantives customers sign up for a year of service at a time (even these contracts may be cancellable) and hence there is no basis to presume 10-years worth of future revenue, much less treat such future revenue as current income against current costs.

So absent my or aQuantive's long-term 'promise to pay', no you don't any future revenues to add to your present valuations. No promise, no "worth today", and no "profit already made".

All I am arguing is your stupid math. And I win because you have started questioning your own numbers.

LOL - your denial is exceeded only by your illiteracy. No, I have never questioned 'my own numbers' beyond disclosing what kinds of assumptions I had made.

I will challenge anybody who says that assume AQNT profit doubles in the next three years and still it is bad play at $6B anyday. In fact, in plain word I will call such a person, "naive".

I'd be more impressed if you'd back up those challenges with facts, and maybe a truthful quote or two of mine once in a while.

Charles said...

A slight correction to my:

So absent my or aQuantive's long-term 'promise to pay', no you don't any future revenues to add to your present valuations. No promise, no "worth today", and no "profit already made".

Should read:

So absent my or aQuantive's customers' long-term 'promise to pay', no you don't have any future revenues to add to your present valuations. No promise, no "worth today", and no "profit already made".

Anonymous said...

I don't think microsoft developers would have the attitude to take on Agile and try to make it work, it would feel like jumping off a cliff. And they would jump back to waterfall.

Sorry, but you guys have it all wrong. Microsoft developers are not to blame here. We would like nothing better than to ship top quality products full of high-pri incremental improvements but we get dicked over 6 ways from Sunday by management.

Everything we do is dictated by PMs and management from behind closed doors. Their priority is doing big, flashy features to pad their reviews, resumes, and headcount. So the first two years of a release cycle are spent working on big, 2+ month features that won a popularity contest and are usually poorly thought-out due to lack of input from engineering. Any incremental improvements are handled as DCRs or bug fixes by developers and testers at the end of the cycle. Most never get done.

Management tells us what to do, and how to do it. Dependencies are not avoided but encouraged and often required. "ABC's group is doing something similar. Work with them to come up with a DLL that solves both problems. And write it against XYZ's API, even though that won't be done for 2 milestones. Oh, and make sure it displays Messenger pawns, syncs with Outlook, and is written in C#." Yeah, right.

You would be pissed too.

Anonymous said...

I don't think microsoft developers would have the attitude to take on Agile and try to make it work, it would feel like jumping off a cliff. And they would jump back to waterfall.

A few of us can, have, and delivered nearly bug free software. Most (like the rest of my group who tried it) are just plain not good enough to handle it and go back to delivering bug ridden software using waterfall.

Anonymous said...

Charles you interpreted these words incorrectly, "But that tiny boost will be on a profit of $15B and not $250 M,"

Here I meant that you would argue that AQNT doubling its profit will not have any measurable growth impact on Microsoft's $15B profit. True, it will have a negligible effect on Microsoft's entire P/E. But this negligible effect will be distributed over Microsoft's larger earning of $15 B.

Any aquistion is done at premium. Because any acquistion doubles the demand of the company's share. In AQNT at least three times, since there were other bidders too.

So any acquisition is an upfront loss. By your logic, any acquistion will remain a loss for 15 years!

Nops. An acquistion is profitable if it adds more market cap in Microsoft's stock than it was purchased for. That is paying double the price make sense, if you could double the acquistion's profit by higher synergy or cost saving of the acquistion. Or you can simply raise the expected growth rate by say 10%. If you know cash flow analysis, a company growing at 50% deserves is worth double than another growing at 40%.

Of course whether we would be able to raise growth trajectors of AQNT is speculation. But this is a usual speculation. Without making this speculation you can't aquire anything.

P/E is a function of growth. Google has higher P/E not because Goog is overpriced but because it has higher projected growth. Similarly for Apple.

By your argument one should buy only steelmakers, with P/E of single digit. Because these are the only companies which can be profitable quickly (albeit still will take 10 years! if you ignore the interest as you seem to be doing, and infinite years if you include the interest)

Anonymous said...

I'll be a bit contrarian here. To me the acquisition makes good sense, but the timing of the acquisition doesnt. Something like this should have been done much earlier.

Microsoft understood Google's business model and ambition well enough 3 or even 5 years ago. They had the cocky confidence that they can build the capability in house and compete. They lost time, and money. There was ample evidence that such a thing is hard to get right by building it from scratch, case in point MSN!.

What Microsoft missed is that this is not about software itself, but advertising really. You dont build search like you build an OS. The entire culture of self centered arrogance is what led them to this point and yet they dont really get it it: You cant build a different kind of business by your existing competencies.

Money doesnt buy you everything.

Anonymous said...

>"You cant build a different kind of business by your existing competencies."

Best post/best quote this thread.

Charles said...

Anonymous digs himself in deeper:

Any aquistion is done at premium.

False. As an example Chrysler was just bought out by Cerberus with most costs born by the seller and the unions. That is an example of the opposite extreme from the aQuantive acquisition. There is an entire range of buyer/seller cost distribution tradeoffs in between - most deals are priced to reflect their unique strengths or weaknesses. The FCF analysis I sketched simply outlined the boundaries of worst to best case for the aQuantive acquisition, illustrating that it was at the extremely expensive end of the curve and profitability would be difficult even assuming exponential growth.

Because any acquistion doubles the demand of the company's share.

No, not "any" acquisition. Microsoft itself doubled the share price of AQNT, no one else. Of course shareholders then started unloading, but no, demand has not exceeded the pershare price Microsoft offered and it won't, arbitrage trading will close in on it.

So any acquisition is an upfront loss. By your logic, any acquistion will remain a loss for 15 years!

More intellectual dishonesty from you.

I specifically gave a range here of: Whether profitability is reached in 52, 15, 10 or even 5 years (depending on 52-years of flat to 5-years of exponential growth assumptions), a free cash flow analysis gives a quick idea of how stunningly expensive the aQuantive acquisition is.

And I repeated that range here: Unlike rental proptery that can be sold, aQuantive won't be sold and the only way Microsoft will recoup its purchase price is on cummulative monthly profits in excess of cummulative costs - ie, free cash flow, which as previously noted will take anywhere from 52 years (unrealistic worst case) to 5 years (unrealistic best case).

So, for the 3rd and final time, by my logic the acquisition will remain a loss "anywhere from 52 years (unrealistic worst case) to 5 years (unrealistic best case)".

An acquistion is profitable if it adds more market cap in Microsoft's stock than it was purchased for.

Again you conflate the 'P' in P/E with the 'E', and you make empty assertions that will never be testable because as previously noted aQuantive's financials will be buried under some Microsoft division. The data of any profit or loss will never come to light, hence any attribution of aQuantives' direct impact on the 'E' in P/E will never come to light. Further, the acquisiton is clearly unprofitable today, given AQNT was bought at twice its market cap, so, if you insist on valuing by market cap at least have the intellectual honesty to admit Microsoft paid twice AQNT's present market cap, which (by market cap) makes it a loss, until such time as actual growth in earnings proves otherwise.

That is paying double the price make sense, if you could double the acquistion's profit by higher synergy or cost saving of the acquistion.

Geeze Louise! NO! Just doubling the profit is not sufficient. It only makes sense if and when the combined profits exceed the price paid! As previously shown, assuming an unrealistic 5-year exponential growth, the free cash flow still only recoups about $1.5B of the extra $3.3B paid! Only in year 6 (assuming continued exponential growth) is that extra $3.3B fully recouped! And that assumes (generously) that a $2.7B market cap was a fair starting point and the asset doesn't deteriorate or is otherwise impaired.

Or you can simply raise the expected growth rate by say 10%. If you know cash flow analysis, a company growing at 50% deserves is worth double than another growing at 40%.

Well, for your internal business plans you can raise by any number you pull out of your, er, thin air. But to actually deliver on that growth, are you just gonna issue a memo? Set a new quota for the sales force? 10% above what? The previously assumed double growth so now you're assuming 110%? Or 10% above 50% - is 60% your number? But, further, your presumption of a "company growing at 50%" is inconsistent with your presumption to "double the acquistion's profit". On which does your argument rest? 50% growth or 100% growth? 110% 60% Pick one and stick with it or do the math for all of them. Sheesh! And as previously noted, all are unrealistic. Once a company gets above $500M to $1B revenue, 15-30% sustained growth is considered exceptional and 50-100% is extremely rare - certainly not likely to happen under Microsofts' management.

And when you write "deserves", you myopically continue to focus on the speculative 'P' in P/E - what you think a stock price "deserves". They "deserve" nothing. They must earn everything. Every quarter. "Deserve is a word used by sell side analysts. What you think aQuantive at $6B "deserves" and what it can earn, profitably, are two different things.

Of course whether we would be able to raise growth trajectors of AQNT is speculation.

Well duh! Ya think? And if one were to speculate, what do you think might be the upper and lower limits on ROI, FCF, and when there might be a recoup of costs and return to profitability?

Without making this speculation you can't aquire anything.

Well, one can avoid over paying. aQuantive sure saw you coming. Deep pockets. Itching to make a mark, any mark. Fearful of Google outdistancing, and a predisposition to blindly make "big bets" (regardless of having no track record of pay off).

P/E is a function of growth.

Why not just come down to earth and deal with facts. P/E is a function (a ratio to be specific) of speculative open-market trader price setting over a companies reported GAAP earnings based on its results, no more, no less.

By your argument one should buy only steelmakers, with P/E of single digit. Because these are the only companies which can be profitable quickly (albeit still will take 10 years! if you ignore the interest as you seem to be doing, and infinite years if you include the interest)

You clearly and dishonestly, persistently (and I conclude consciously and deliberately) ignore what I previously posted. But then you have to. If it weren't for strawmen you'd have no argument at all.

Anonymous said...

"Something like this should have been done much earlier."

Uh, what? A $6 billion purchase isn't like going down to the supermarket. This deal had to have been in the works well before the DoubleClick announcement.

I imagine that the timing is more related to resigned acceptance that the staff at MSN lack the abilities needed to deliver a competitive solution in-house in time to keep MS in the game.

Anonymous said...

Here's all you need to know about Agile:

http://steve-yegge.blogspot.com/2006/10/egomania-itself.html

Scroll down to "Making Chili".

Anonymous said...

I noticed an interesting comment in a story about Steve Ballmer's visit to Australia.

But Microsoft has kept the boss's movements out of the public eye and a spokeswoman said "we are not letting any media in" to watch today's speech. Instead, a video recording of the speech will be uploaded for journalists to watch after the event.

Microsoft confirmed the video would be edited but would not say if the editing was done for aesthetics reasons or to conceal certain comments from the public.


After recent experiences with his speeches and stock drops, it appears that he's being far more careful about his comments.

http://www.theage.com.au/news/technology/dont-mention-the-broadband/2007/05/25/1179601632521.html

Anonymous said...

I think Microsoft's negotiators got taken, pretty clearly. They believed there was competition and acted as such, given the auction run by Morgan Stanley. In reality, there were no other bidders (google couldn't because of HSR issues, IAC couldn't afford it nor would pay, Yahoo decided not to bid, etc.). Poor advice. Huge price.

Anonymous said...

Everything we do is dictated by PMs and management from behind closed doors. Their priority is doing big, flashy features to pad their reviews, resumes, and headcount. So the first two years of a release cycle are spent working on big, 2+ month features that won a popularity contest and are usually poorly thought-out due to lack of input from engineering. Any incremental improvements are handled as DCRs or bug fixes by developers and testers at the end of the cycle. Most never get done.


I've seen this. The people writing the spec misunderstood what the users were asking for, when they used a certain phrase. Here comes the detailed spec, and it now discusses the feature in question, with only 25% of the capabilities desired by the users, because the team doing the detailed spec didn't know what the phrase meant out in the real world. To fix this and actually include the feature requested by multiple Fortune 500's requires a DCR, which of course didn't get through because it's too late in the product cycle. It's not even a design change, just a PM braindamage recovery request.

I'm in TEST, yes TEST, and because I've worked outside the walls of Redmond, I knew what the users were asking for. It frustrates me that PM's who didn't do their homework don't have faces full of egg for it, and and that no one in the management chain is insisting, "This is going to cost us market credibility. FIX IT." It just seems that everyone's so afraid of looking bad to their manager, that they'll sweep any internal failure under the rug.

As historic to the MSFT culture Dev/PM may be, maybe it's time for us to turn any PM's who can't code into project managers, and any PM's who can code into devs, and any devs who can't write specs into junior devs. Then the senior devs can design, with full knowledge of the bed they're making for themselves when they do, and no one but themselves to point the finger at later when there are problems during implementation. Based on what I've seen elsewhere, it just seems that on many occasions we're losing something by splitting design and implementation responsibilities.

Maybe it's also time to take some of the tremendous upside out of individual managerial achievements reported on paper and make it about profit-sharing on one's product line instead. If there wasn't so much to gain from sweeping failures under the rug, maybe it would happen less often.

Anonymous said...

>"I imagine that the timing is more related to resigned acceptance that the staff at MSN lack the abilities needed to deliver a competitive solution in-house in time to keep MS in the game."

SHOULD READ: I imagine that the timing is more related to resigned acceptance that
THE MANAGEMENT at MSN lack the abilities needed to deliver a competitive solution in-house in time to keep MS in the game.

Anonymous said...

>I think Microsoft's negotiators got taken, pretty clearly.

Bunch of bozos will get paid special bonus for giving wrong advice. KJ will get big stock award.

Anonymous said...

>"I imagine that the timing is more related to resigned acceptance that the staff at MSN lack the abilities needed to deliver a competitive solution in-house in time to keep MS in the game."

>>"SHOULD READ: I imagine that the timing is more related to resigned acceptance that
THE MANAGEMENT at MSN lack the abilities needed to deliver a competitive solution in-house in time to keep MS in the game."

no, actually -- you can blame this one on everyone over there, not just the management.

after growing-up in the developer division and then giving MSN a try for something new, i can tell you that the overall quality of people working throughout MSN is significantly lower than in other parts of the company. i fled after a year because the suckage was so rampant.

i suppose you can blame the management for hiring folks with less-than-stellar skills, but the current troubles at MSN are at all levels of the org. there simply isn't a critical mass of brain power to solve the big problems.

Anonymous said...

"SHOULD READ: I imagine that the timing is more related to resigned acceptance that THE MANAGEMENT at MSN lack the abilities needed to deliver a competitive solution in-house in time to keep MS in the game."

Yeah, because the management at MSN is specing up badly designed systems and features nobody wants and is coding up buggy and non-performant stuff.

If you don't think there's anything wrong at the lower ranks, chances are that you are part of the problem.

Anonymous said...

i suppose you can blame the management for hiring folks with less-than-stellar skills, but the current troubles at MSN are at all levels of the org.

Exactly.

- MSN is not allowed do anything that will negatively affect the revenue of the main cash cows of Windows and Office.
- The quality of people at all levels at MSN is much lower than, say, the Servers or OS divisons. A lot of junk has accumulated over the years, especially in the PM ranks.
- MSN has to run on Windows. Why not let them choose whatever OS and WebServer that suits them best?

MSN has always been a defensive play by Microsoft. No wonder it is a miserable failure.

Anonymous said...

the overall quality of people working throughout MSN is significantly lower than in other parts of the company.

Hey, OP, can you tell us what in particular is wrong with them? Did you get the sense that they were hired quickly to snap up might-be-talent so that no one else would get them? Hired so that reqs would get filled before they were yanked? Were the people doing the hiring looking for the wrong skillsets? Etc.

Anonymous said...

"the overall quality of people working throughout MSN is significantly lower than in other parts of the company."

>"Hey, OP, can you tell us what in particular is wrong with them? Did you get the sense that they were hired quickly to snap up might-be-talent so that no one else would get them? Hired so that reqs would get filled before they were yanked? Were the people doing the hiring looking for the wrong skillsets? Etc."

why yes, yes i can. :) or rather i can give you my theory.

way back in the day, when bill said "OMG there's this thing called teh webnets and it has all this content and we need to win win win OMG", we set-out to create a content-focused destination for the masses of people surfing unique web content. thus, MSN was born.

and because internet sites were so simple compared to say, shipping SQL server, we spent headcount hiring non-technical editorial people, web devs (not considered *actual* developers by the hxc devs) and a few senior big picture folks to make the whole thing go. i mean, c'mon -- who would think we'd need a technical brain trust on MSN, for cryin' out loud? "it's just a web site!"

and time went by. and the web became more complex. and the less-technical MSN PMs became lead PMs, and the web devs became dev leads, and everyone was happy(ish) for a short while as they focused on creating destination sites for niche audiences.

but sadly, the web was becoming much more complex -- and what's kinda unforgivable is that the developer division at microsoft was trying to *drive* web site evolution with ASP.NET and the .NET framework, yet nobody at MSN had any clue what was going on because they weren't especially technical and they weren't especially plugged-in to what the .NET team was doing or what other competing products were doing in the market. this i know, because i was right in the middle of it at the time. :P

and then one day -- all of a sudden, in the MSN head-in-the-sand world view -- web sites need to be super-interactive OMG! and social networking is taking off everywhere! and people are blogging content and storing pictures and posting videos etc. etc. etc... and the execs panic, and the "better together" mandates come down requiring everyone at MSN to link everything together via -- and this is the funniest part of all -- PASSPORT... and you have all of these semi-technical people, and not enough brilliant architects, driving this giant process that got off the ground in the most ass-backward "get it done yesterday because we're so far behind and BTW use passport, the most inflexible infrastructure goat rodeo in the company, to glue it all together" way.

the cruel irony, of course, is that we were so far behind because we didn't have the brilliant thinkers thinking about the web, yet we're tasking these second-stringers with taking MSN deep into the forefront of web 2.0 in record time.

(drumroll) and thus WINDOWS LIVE -- the result of this "omg web 2.0 is heeeeeeeere! mandate -- is a total abortion. but you saw that coming if you were at MS and paying attention, because it was a bunch of technical MSN b-teamers driving a massively ambitious project.

the end. :)

Anonymous said...

>"If you don't think there's anything wrong at the lower ranks, chances are that you are part of the problem."

I did not infer that. I'm on the outside, so I would not know, but I do know that from out here, MSN has a serious branding issue that is caused by products that can only seem to find niche customers.

The managers hired the rank and file, so yes they are responsible for poorly written code, etc.

I guess now the managers are looking to figure out how to integrate aQnt, and inevitably some RIF at MSN and other MS segments may happen.

It is a tough thing to build a weak business only to eventually be forced to RIF the weakness you built.

Anonymous said...

way back in the day, when bill said "OMG there's this thing called teh webnets and it has all this content and we need to win win win OMG", we set-out to create a content-focused destination for the masses of people surfing unique web content. thus, MSN was born.

How quickly history is forgotten.

All through the early 90s, online services like CompuServe and AOL were exploding. Microsoft started MSN as a knock-off of AOL (no Internet) and released it in 1995. You think people are upset about Zune now? This is nothing new. People were wondering more than a decade ago why Microsoft was wasting millions on an inferior version of AOL that had no users.

The especially hilarious part of this story was that as soon as Microsoft released its AOL clone, everybody got fired up about the Internet, so the whole service had to be completely redone as an EarthLink clone (ISP) and was released years late again.

Subsequent years were spent trying to be like Yahoo! and AltaVista by making a rich portal, which is more or less where we are now, even though everybody switched to Google, Web 2.0, and online advertising years ago.

So put into historical context, it's no big surprise that Microsoft is still years behind and struggling to copy the current trendy companies as fast as possible. This continues a long, money-losing, employee-morale-destroying tradition.

Anonymous said...

>>So put into historical context, it's no big surprise that Microsoft is still years behind and struggling to copy the current trendy companies as fast as possible.

This was the old Microsoft. MSFT would get fixated and over engineer something an existing company is doing. Trying to fix every last problem, finding the issues are deeper than envisioned, and taking years to ship only to discover everyone has moved on.

The new Microsoft is willing to enter new markets, very quickly, and do quick iterations or quick acquisitions. The journey and the learning is important - not duplication of someone's existing product. This generates the insight which enables building something people will want to have versus the old way of rebuilding something they already have. XBOX, ZUNE, Windows Live, MSN, and its incubations (under Ray Ozzie & Gary Flake) have all internalized this. The leadership is willing to quickly make the changes needed to ship current versions and add the right functionality to new versions of projects.

Anonymous said...

XBOX, ZUNE, Windows Live, MSN, and its incubations (under Ray Ozzie & Gary Flake) have all internalized this. The leadership is willing to quickly make the changes needed to ship current versions and add the right functionality to new versions of projects.


Couldn't agree more... combination of Steven, Ray, Gary, and the exodus of the current MSN management is going to make Live/MSN over in short order. For better or worse. (I hope better)

Anonymous said...

The new Microsoft is willing to enter new markets, very quickly, and do quick iterations or quick acquisitions. ... This generates the insight which enables building something people will want to have versus the old way of rebuilding something they already have. XBOX, ZUNE, Windows Live, MSN, and its incubations ... have all internalized this.

Really? XBox 360 seems like a quick iteration that is relatively successful, but even there it's no match for the Wii (a product that people REALLY want) and it's not even clear that it will sell more units than the original XBox. Zune is a product that nobody wanted or wants now. Windows Live is something that people seem to want even less than MSN. I don't see how anything in this list supports your point.

Anonymous said...

"Really? XBox 360 seems like a quick iteration that is relatively successful, but even there it's no match for the Wii (a product that people REALLY want) and it's not even clear that it will sell more units than the original XBox."

the wii is great for what it is, but it's apples and oranges to compare it with the 360. the wii has innovative gameplay but suffers from not having many highly rated games (and, truthfully, a pretty anemic pipeline for this year), and it serves a different audience than the 360 since the graphics capabilities are so weak.

the 360, on the other hand, is the clear market winner at the moment for the hardcore gaming audience, has a really strong portfolio of not just big selling games, but highly rated games, and don't forget that halo 3 is due out this year and will undoubtedly do a few hundred million in business.

360 is also the furthest along of the 3 majors in online and download marketplace business, which is a very good place to be at the moment. it would be hard to argue that xbox live isn't a huge success for the company.

i think 360 is the one microsoft product where you can't say "microsoft isn't giving peole what they want" simply due to the number of fan sites and the success of the platform-exclusive titles.

Anonymous said...

>"The leadership is willing to quickly make the changes needed to ship current versions and add the right functionality to new versions of projects."

I guess that is why Next Vista and XP service pack three won't be out any time soon, and Vista itself is just a rehash of all the problems carried over since NT.

I just spent four hours this morning trying to figure out why Vista Mail would not work for a client, only to find that I had to use admin command line to disable netsh interface tcp set global autotuninglevel. You think your mom and pop customers know this? What a pile of crap.

I challenge Ozzie to fix the stuff you are selling now before you try to build something new, otherwise it will be the same crap made by the same bad habits.

>"i think 360 is the one microsoft product where you can't say "microsoft isn't giving peole what they want"

Wow, what have you been smoking? I buy games, but not from Microsoft. You people are ignoring the pc gamer market in favor of leveraging a loser hardware platform-console that couldn't stay current with technology if it was bit in the ass. The only reason XBox is in as many places as it is is because Microsoft is selling it at a loss to force market share. Same strategy as the printer market that sells printers(i.e., consoles) at cost, making it back in cartridges (i.e., games). But you forgot the market is bigger than just consoles. A lot bigger.

Anonymous said...

Anonymous said...(Emphasis mine)

the wii is great for what it is, but it's apples and oranges to compare it with the 360. the wii has innovative gameplay but suffers from not having many highly rated games (and, truthfully, a pretty anemic pipeline for this year), and it serves a different audience than the 360 since the graphics capabilities are so weak.

the 360, on the other hand, is the clear market winner at the moment for the hardcore gaming audience, has a really strong portfolio of not just big selling games, but highly rated games, and don't forget that halo 3 is due out this year and will undoubtedly do a few hundred million in business.


Apples and Oranges...Yes, I'd have to admit that you're probably right about the Wii being targeted to a different class of gamers than the hardcore gamers who prefer the XBox360. BUT it is those casual gamers that trend towards the Wii that outnumber the hardcore gamers by at least 20:1 (most published studies have said that only about 5% of the 'gamers' are hardcore gamers, the rest are casual gamers). So while we may make a better device for the hardcore gamer, it isn't all that worth it for the casual ones (the larger market share). Sure, the casual gamer can download games like Zuma for their 360, but they can download the same game for their PC using Yahoo! Games or MSN Games as well (which they're more likely to do). The Wii is better positioned for this larger audience, and isn't that what 'market dominance' is all about; the larger audience?

And the Wii has something with its innovative gameplay that the 360 doesn't...The ability for Couch Potatoes to actually get some exercise while they play. What a concept!!! Something to make fat, lazy kids a bit less fat & lazy. Fat & lazy kids grow up into fatter and lazier adults whose concept of exercise doesn't even include getting up from the couch for another soda, since they are "hardcore gamers" and have a fridge built into their gaming chair between the speakers. (I include myself in that description of adults, except that I don't have a fancy gaming chair.)

Anonymous said...

"What a concept!!!"

What a gimmick, you mean. It's nothing that the PS3, 360, or even the PC (anybody remember the tilt-sensor Sidewinder gamepad we had, years before the Wiimote) couldn't copy if it became clear that the way the market is going.

Anonymous said...

"Wow, what have you been smoking? I buy games, but not from Microsoft. You people are ignoring the pc gamer market in favor of leveraging a loser hardware platform-console that couldn't stay current with technology if it was bit in the ass. The only reason XBox is in as many places as it is is because Microsoft is selling it at a loss to force market share. Same strategy as the printer market that sells printers(i.e., consoles) at cost, making it back in cartridges (i.e., games). But you forgot the market is bigger than just consoles. A lot bigger."

this isn't really a rational argument... it's pretty obvious you have a religious platform preference and you're arguing from that personal perspective. i'll refrain from using the term "PC fanboy" because, well... i'm kind of a PC fanboy myself.

but the numbers don't lie -- the 360 has more titles selling millions of units than either nintendo or PS3, and that doesn't have anything to do with microsoft selling the hardware at a loss. just because *you* don't buy your games from microsoft doesn't mean that halo 3 won't do hundreds of millions of dollars in sales from millions of people who think it's the greatest thing since sliced bread, and you can't dispute numbers like that when it comes to a game title. you may not love the 360, but there sure are a lot of people who do.

being primarily a PC gamer myself i understand your bias -- but consoles vs. PC is a religious battle that's been ongoing since the beginning of gaming and it's not going to end any time soon.

and from another comment --

"BUT it is those casual gamers that trend towards the Wii that outnumber the hardcore gamers by at least 20:1 (most published studies have said that only about 5% of the 'gamers' are hardcore gamers, the rest are casual gamers). So while we may make a better device for the hardcore gamer, it isn't all that worth it for the casual ones (the larger market share). Sure, the casual gamer can download games like Zuma for their 360, but they can download the same game for their PC using Yahoo! Games or MSN Games as well (which they're more likely to do). The Wii is better positioned for this larger audience, and isn't that what 'market dominance' is all about; the larger audience?"

again, xbox live arcade is targeting the casual gaming audience and many of these casual titles are doing great business on the 360 platform even at this very early stage of the business model.

i spent 3 years in the casual gaming space, and although it's a booming business even the most successful casual portfolio represents only a small fraction of the revenue that a blockbuster title like halo 3 will generate. one thing you're failing to mention is that although there are ostensibly many more casual players than hardcore players, finding a way to monetize those casual players in giant numbers has been elusive... the biggest blockbusters in the casual world won't make anything like the bucks that the biggest blockbusters in the PC and console world make.

Anonymous said...

What a gimmick, you mean. It's nothing that the PS3, 360, or even the PC (anybody remember the tilt-sensor Sidewinder gamepad we had, years before the Wiimote) couldn't copy if it became clear that the way the market is going.

Everything is obvious if somebody shows you exactly what to do and how to do it.

Anonymous said...

"High growth also assumes Ad customers cooperate and are willing to do business with Microsoft"

Speaking as an advertiser, I would no more buy ad space from Microsoft than I'd buy an AOL keyword. Google is it, and while some competitor may unseat them in my lifetime, the chance of microsoft being that competitor is just about nil.

Anonymous said...

My wife and I enjoy a lot more sweaty, happy monkey sex.

So do I and my wife. The zoo-keepers are shocked, the monkeys are bemused, and we always have an audience. Follow the Monkey Boy, that's our motto.

We keep the geladas happy. What about you? The spider monkeys?

Anonymous said...

People call the Nintendo Wii obvious, but they're missing the point. The Wii is obvious, but it's obviously low-priced, obviously includes a solid set of starter games that draw people of all ages in, obviously breaks new ground in a market only hinted at by previous products and is obviously selling like hotcakes.

That's the sort of obvious that many companies would really like. It's a shame that it's too obvious for them to see, let alone comprehend.

Casual gamers will baulk at the cost to get an Xbox360 or PS3 running, while a Wii is far more palatable. Casual gamers don't want ads full of violence, car crashes and blood, so the Wii's focus on players having fun (see the Raving Rabbids ads) hits home to them. Do you know that The Sims and Myst are two of the biggest games of all time?

The market may move to include wireless sensors like the Wii has, but there's something about being first, about being mature and having all your developers on board.

The Wii is a stronger competitor than many think. I won't buy an XB360 or a PS3, but I've got a Wii and after 20+ years of computer games, it's a breath of fresh air. Microsoft execs joking about 11-year old kids growing out of their Wii consoles seems like a bunch of 50-something old men calling the new styles "hip and groovy." People so far out of touch they can't even see the present.

Anonymous said...

the 360 has more titles selling millions of units than either nintendo or PS3, and that doesn't have anything to do with microsoft selling the hardware at a loss.

No, but it does have a lot (if not everything) to do with the fact that the 360 has been out for three times as long. Back when the PS2 was only six months old, I'm sure similar comments were made about how the Dreamcast was the "clear" market leader.

Anonymous said...

Note to moderator:
Could we please cut back on the gamers comparing the length and thinkness of their organs? This has nothing to do with the topic at hand (or even the topic of this blog).

Anonymous said...

"Note to moderator:
Could we please cut back on the gamers comparing the length and thinkness of their organs? This has nothing to do with the topic at hand (or even the topic of this blog).
"

um, microsoft is in the business of making games and so the strategy of msft's focus on said business has *everything* to do with the topic of this blog.

Anonymous said...

"People call the Nintendo Wii obvious, but they're missing the point. The Wii is obvious, but it's obviously low-priced, obviously includes a solid set of starter games that draw people of all ages in, obviously breaks new ground in a market only hinted at by previous products and is obviously selling like hotcakes.

Casual gamers will baulk at the cost to get an Xbox360 or PS3 running, while a Wii is far more palatable. Casual gamers don't want ads full of violence, car crashes and blood, so the Wii's focus on players having fun (see the Raving Rabbids ads) hits home to them. Do you know that The Sims and Myst are two of the biggest games of all time?

The market may move to include wireless sensors like the Wii has, but there's something about being first, about being mature and having all your developers on board."


there's a lot of misinformation and speculation happening in the above:

"Casual gamers will baulk at the cost to get an Xbox360 or PS3 running, while a Wii is far more palatable."

the Wii is not so low-priced -- it's about 279.00 for a basic system compared to the 360's 299.00 basic system.

"The Wii is obvious, but it's obviously low-priced, obviously includes a solid set of starter games that draw people of all ages in"

the wii has been criticized for *not* having a solid set of starter games -- take a look at one of the ratings aggregator sites like gamerankings.com and you'll see most of the games available for the wii scoring fairly low, with correspondingly low sales volume.

as with other efforts, nintendo tends to release new consoles with a very spartan portfolio of top-quality games, and although they're selling a ton of consoles they're not doing as well in the number of games sold per unit.

"Do you know that The Sims and Myst are two of the biggest games of all time?"

first of all -- myst is not a casual game. the sims is certainly a huge success, but so what? just like with everything else, there will be different audiences drawn to different kinds of games. the sims, world of warcraft and halo are all raking in hundreds of millions of dollars -- so they're all successful at targeting their respective markets, and they're all making a massive profit. mission accomplished?

"Casual gamers don't want ads full of violence, car crashes and blood, so the Wii's focus on players having fun (see the Raving Rabbids ads) hits home to them."

you're making a broad generalization here -- there's a certain segment of the casual population that's attracted to a certain kind of advertising and gaming -- but there are many casual gamers who play different kinds of games and are attracted to different game mechanics. as for the effectiveness of these messages in selling games -- conversion rates for trial games in the causal space tend to hover around 1-2%, so even when the committed players are looking for new games they're not especially likely to purchase compared to the *much* higher conversion rates for hardcore gamers.

much like movies, different games appeal to different demographics. saying that xbox is missing the boat because to-date they've focused on the (very lucrative) hardcore market is equivalent to saying that pirates of the carribean is missing the boat because it didn't include animation and science-fiction.

Anonymous said...

>this isn't really a rational argument...

So what you are saying is it is not rational to listen to potential customers? Why is Xbox div so paranoid about selling games on multiple platforms? Let me answer for you: you don't want to dilute the volume of the Xbox platforms because somebody screwed up in the marketing plan and you MUST sell lots and lots of them to keep your jobs. You also don't want to increase sales of competitors like PS3 and Wii or PCs by driving those hardware sales up through standalone purchases of Bunji or other games.

What, you think the world will buy Xbox computers forever, or that it is somehow better than the thousands of choices the public has in building their own hardcore game boxes?

You are clearly confused by your irrational desire to prove that Xbox hardware is cool and the way to go. Maybe slick marketing can define a movement for a while, but your scheme is too proprietary and far to restricting for what it is. The kids will learn this eventually. And no, Gates will not own the living room unless he drastically changes tactics, i.e., its the software stupid.

Anonymous said...

"Why is Xbox div so paranoid about selling games on multiple platforms? Let me answer for you: you don't want to dilute the volume of the Xbox platforms because somebody screwed up in the marketing plan and you MUST sell lots and lots of them to keep your jobs."

ok, this is just getting silly. there are plenty of cross-platform games out there -- but each platform has some flagship exclusive titles *to drive sales of the platform*. duh.

do you see mario or zelda coming out on the PS3? do you see final fantasy coming out on the wii? of course you don't, because they're designed to sell those platforms.

good grief.

Anonymous said...

>but consoles vs. PC is a religious battle that's been ongoing since the beginning of gaming and it's not going to end any time soon.

Not so different than the religious battle over open vs proprietary software or the battle over severe DRM restrictions vs a more open and looser format that is customer centric. And the music business is dying, being killed off by itself, and DRM, (while the game business has not yet peaked, but it will.) And the OS business, well that religious battle has not really even begun except for a few GPL skirmishes.

It is obvious that Microsoft has engaged in a sony-esque strategy of selling dedicated hardware devices starting with mice, keyboards, expanding to music players and game consoles and so on.

No judgment on that, except that from a strategic decision standpoint, you want to maximize your sales and keep prices low. The only way you can do that is stick to software and drive out the two kinds of software mentioned above (OS, Games), as cheaply and as fast as possible, before the public gets bored and uses their resources on something else, like they are with music.

Anonymous said...

the Wii is not so low-priced -- it's about 279.00 for a basic system compared to the 360's 299.00 basic system.

Let's be honest. Every gamer sees the "core" system as a crippled version of the premium. No one looks at the core as a fully-functional game system comparable to the Wii in price.

I still think the core option was the biggest mistake we made this generation. In gamer's minds, it's not really a cheaper alternative, it's a less-functional red-headed stepchild. Meanwhile, we gave up the ubiquity of the hard drive and forced developers to code for a lowest-common-denominator platform which almost no one has.

Anonymous said...

as with other efforts, nintendo tends to release new consoles with a very spartan portfolio of top-quality games, and although they're selling a ton of consoles they're not doing as well in the number of games sold per unit.

This may be true, but you're neglecting to factor in that the attach rate isn't as important to Nintendo because they are actually making money on the console, unlike the 360.

Anonymous said...

>ok, this is just getting silly. there are plenty of cross-platform games out there -- but each platform has some flagship exclusive titles *to drive sales of the platform*. duh.

duh. My point exactly. What is your expected sales volume on release of Halo 3 for Xbox. Now what would be your expected sales volume on Halo 3 for PCs, Xbox, Wii, and PS3 all released on the same day. Do the numbers, including your losses on each Xbox sold and tell me why you are still employed at Microsoft. Yeah, Duh, big time.

You must be the same guy who talked Gates into buying aQu for $6 billion; same lame logic.

Anonymous said...

"Let's be honest. Every gamer sees the "core" system as a crippled version of the premium. No one looks at the core as a fully-functional game system comparable to the Wii in price."

but the wii isn't targeting gamers, remember... and hardcore FPS gamers are not interested in buying the wii.

that said, i fully agree that the core 360 without a hard drive was a mistake. but you can buy the hard drive for about 75 bucks, which still makes the 360 about 100.00 more than a wii, and doesn't put it in a different price point league.

Anonymous said...

"This may be true, but you're neglecting to factor in that the attach rate isn't as important to Nintendo because they are actually making money on the console, unlike the 360.

i don't think this is a fair statement -- they're making money on the hardware, but they're not making huge money per unit and they're certainly relying on a rich stable of games to bring in revenue throughout the 5ish year lifespan of the console.

Anonymous said...

"duh. My point exactly. What is your expected sales volume on release of Halo 3 for Xbox. Now what would be your expected sales volume on Halo 3 for PCs, Xbox, Wii, and PS3 all released on the same day. Do the numbers, including your losses on each Xbox sold and tell me why you are still employed at Microsoft. Yeah, Duh, big time."

what part of this conversation are you failing to understand? halo 3 will drive sales of the 360, which in turn will allow microsoft to make money on every game those new customers buy for the system and every download they pay for and every monthly fee they pay for xbox live.

this is the same exact strategy that nintendo and sony employ for their console-exclusive titles. it really isn't anything unusual.

Anonymous said...

>"what part of this conversation are you failing to understand? halo 3 will drive sales of the 360, which in turn will allow microsoft to make money on every game those new customers buy for the system and every download they pay for and every monthly fee they pay for xbox live.

this is the same exact strategy that nintendo and sony employ for their console-exclusive titles. it really isn't anything unusual."

The part I don't understand is why you want to drive up sales on a product that costs more to build and market than you will get in return. You could multiply your sales tenfold, eliminate your losses on hardware and make all your customers very happy by doing what I suggest.

Its a win win, while your strategy is a lose, lose even for those who have an Xbox because the hardware is fixed and already obsolete.

Note that copying Sony and Nintendo does not make you smart or right it just shows you can't think and don't know how to innovate (by making hardware at a profit).

You have assumed that the total market consists of the closed leveraged system of a)money losing console, b)games and c)live games. Remove money losing console from the formula by either selling at a profit or not selling it at all. What part of that is it you don't understand?

Anonymous said...

- MSN is not allowed do anything that will negatively affect the revenue of the main cash cows of Windows and Office.

A trip down memory lane ... IBM notices that Apple etc, are on to something, and decide to do something for their programmers to take home, a Personal Computer. They estimate some small number for the total number to be sold,ergo, such a small number is produced - and sells like hotcakes, because it's got those three magic letters behind it: IBM.

IBM rub their hands and smirk. They're on to a winner. Only to find that it's a double-sided win, because now we have everybody else jumping onto the bandwagon, and we hadn't built it near big enough.

And then, they realize they run the risk of this new PeeCee eating into the sales and contracts for their massive mainframes and minicomputers. No, we can't have that, can we?

PS/2 shoots itself in the foot, along with the micro-channel architecture - pity, it actually made sense.

Now we have the same things happening with Microsoft. Do people seriously imagine that things will be different for us, just because, well, we're Microsoft?

Anonymous said...

Looks like your blog is going to get even more traffic now, Mini. Lisa's taken her ball and is going home.

She's officially as big a failure as Ballmer now.

Anonymous said...

Something is terribly wrong with Xbox strategy. We entered game console business because we wanted a computer in the living rooms. It is not like we were dying to have a hardware business.

Now whenever somebody says Xbox is for hardcore gamers and wii for casual gamers, then that person is effectively saying that we failed terribly. Microsoft's purpose had been better served if Xbox had been accepted by casual gamers. We wanted ordinary people to put a computer next to their TV so that we could enhance this computer with entertainment offerings. For an example today the online xbox movie offer is for people who are hardcore gamers. Xbox is a media extender for PC is also for hardcore gamers. No need to take heavy loses if Xbox division had defined the right goal itself. Eventually Apple can start putting a computer next to TV and that too at a profit. Right now Apple TV is expensive but expect to see a huge cut in price when Apply enthusiasts are done with buying Apple TV. Apple TV could easily be sold, even with today's cost, at less than $200 at profit. Apple is making huge profit today on Apple TV to extract out development cost from willing Apple enthusiasts. Even if the cost of harddrive etc remain the same, the device could be sold at $199 tomorrow or cheaper if you account for falling hardware costs.

Anonymous said...

Robbie Bach dumping a s--t load of shares on the market today...what a shocker!!!! Prick.

Keeperplanet said...

Note: while this is a little off Most industrial designers get sucked into the old saw that putting money into the perception of a desirable product (be it hardware or the styling and goodies for the customer) will be made back regardless of cost by increased sales volume caused by the cool design. This is an incredible self-deception that is almost never true. Products make money when efficiently engineered, cheap to build and great in design and style. This is almost always true.

Keeperplanet said...

Mini, it seems the previous post was truncated. Please remove it. Thanks, KP.

>"We entered game console business because we wanted a computer in the living rooms. It is not like we were dying to have a hardware business."

Wow. You just confessed to something we on the outside have seen happening for a long time, i.e., that Microsoft has decided to compete directly with its customers who also build computers. It is a tempting activity for a cash rich technology company. And Zune it is doing exactly the same thing, competing against your customers, who make play for sure hardware. Such a move has probably been quite damaging to your OS customer relations.

As Linux and On Line applications become more competitive, why wouldn't an MS OS customer just go away if in the end Microsoft were just going to compete directly? Microsoft cannot straddle the fence on this. Microsoft is either in the PC hardware business like Apple or it is not. And committing to be IN has incredible consequences for Microsoft: such as owning offshore manufacturing capacity and the reality that companies like Dell and HP will quietly look for alternatives to their OS sources in lieu of Microsoft becoming a direct competitor.

In order to fix this you need to understand your mistake in vision from the industrial design side. Exactly how can industrial design damage a company? Primarily it happens by not understanding how to manage ID, and mostly by managers not having the technical knowledge to manage both engineers and designers to achieve desired results.

My examples will be Xbox, Vista, and Macbook. First, Xbox, looks great, has all the trimmings, controller, computer looking small case, but it is a fixed product with little or no modularity and it cannot easily be upgraded (that includes hardware and software) by the user or the factory. And it costs more to build than the price point for the product allows.

A typical IDSA (Industrial Designer’s Society of America) designer with heavy styling-non-engineering prejudices will first, not be able to deliver the engineering CAD models needed to tool the enclosures, and second is coming from a 20th century set of tools preventing direct concept to tool designer development. Most industrial designer training and experience has severe problems in solving specific development issues related to keeping the product price to manufacture on target.

Looking at the interface design of Vista, one has to admit that the design is great looking, cool to use and unreasonably slow to load and run older machines. And the human factors defining the adoption of Adobe and Apple style tagging and file manipulation is confusing at best. What happened? ID lost sight of the target or had no realistic target in mind which when communicated with the developers caused delay and havoc in the product vision.

Regarding the Macbook there has been significant heat management problems because the industrial design teams insisted on no compromise in size and the engineering teams were unable to make it work properly until after release. I am not confident at this juncture that the components will have longevity because of the packaging issues, but time will tell. There has been documented shut downs by the thousands of Macbooks due to heat. How many borderline components are affected over the long term is unknown.

The industrial designer without engineering background gets sucked into the old saw that putting money into the perception of a desirable product (be it hardware or the styling and goodies for the customer) will be made back regardless of cost by increased sales volume caused by the cool design. This is an incredible self-deception that is almost never true. Products make money when efficiently engineered, cheap to build and great in design and style. This is almost always true.

Anonymous said...

What do you mean Keeperplanet?

There is a difference between resellers (what you call customers) and the actual end users.

Microsoft does not compete with end users.

Regarding competing with resellers, most manufacturer do compete with their own resellers.

Last I checked, Apple Mac sells at more than 5000 outlets and iPod many times more outlets. So Apple is pretty much competing against its own resellers by 180 self owned stores.

Airlines sell tickets on their own websites as well as on travelocity where $10 surchage is added.

Microsoft on the other hand shows the most amount of self control of not entering in partner's businesses, as much as possible. And in some exceptional cases when it does it tries to compete on equal footing.

Anonymous said...

"Last I checked, Apple Mac sells at more than 5000 outlets and iPod many times more outlets. So Apple is pretty much competing against its own resellers by 180 self owned stores."

this isn't the correct analogy -- apple is selling the same apple product both through channel partners and in its own stores.

what keeperplanet is talking about here is the case where microsoft encourages manufacturers to create hardware products to support microsoft software and services, and then decides to create its own hardware products that compete against those of its partners.

keeper is absolutely correct about the zune competing with hardware partners directly but not so much with the 360 -- the 360 will never replace the PC, as its mission is pretty much fully dedicated to media and games. if you start seeing ms office for the 360 then it's time to worry about competing with dell and our other PC partners.

Keeperplanet said...

>What do you mean Keeperplanet?

I was talking about MS competing against the manufacturers of computers, (Dell, HP, Gateway, etc.) who buy your operating systems to put onto computers, used for games, home entertainment devices and so on. Hardware that is being substituted in the PC gamer and home entertainment business by existing and future living room products--hardware devices currently existing and planned manufacture by Microsoft. These are Xbox and Zune at the moment but I am sure MS is planning a lot of these devices.

The sales channel issue is not an issue, as you are correct that manufacturers can and should market and sell their products in as many channels as possible.

What I am talking about is that with the statement from Bill Gates that he intends to own the living room and that Xbox division is likely the division to do that. If Gates is talking about software sold to your OEMs then its not an issue, but if he is talking about building dozens of specialty products to serve the consumer needs in the living room, he is talking about being a Sony with the caveat computing devices for the consumer in the home. Hardware, coupled with software, like the personal computer. The poster said it was the intention of Microsoft to make a computer for the living room. Direct hardware+software manufacturing competition to your OEMs.

My point is there are millions who prefer/would prefer computers (pc's or notebooks, umpc's) as the device of choice for running the living room, including games, movies, HDTV, internet access, mechanical and electronic devices via controllers (lights, security, heating, cooling, and so on). If you are going to own the living room, you have to manufacture computers, the hardware+software, that is.

Any way you cut it, all the excitement on the consumer products arena will be in these kind of devices. I can't see that division being a part of your operating system division without burning some feathers in your OEM markets. It looks to me like a necessary break up in order to do both.

Anonymous said...

Like Apple sells it product at as many channels as possible similarly Microsoft should, but it actually does not do for most of the products.

Hardware is an outlet for selling software. So Microsoft even if it creates its PC would be at the same analogous standing as Apple selling at its own store.

What you could argue against is if Microsoft takes a loss on its PC hardware and subsidizing it by the profit on hardware. As long as Microsoft does not do this, it is equal standing with its partners.

Whereas, it is known that Apple is at advantage while selling its product through its own outlet. For an example, Apple provides free inscription on iPod. Most products are available at Apple store while not at other stores. Provides extra add on services, for free, at Apple stores which other resellers can't afford. Provide better customer service if the product is bought from Apple than the same product if bought from another place.

Basically Apple puts its resellers at disadvantage by competing against them. On the other hand if Microsoft decides to make a PC today, and does not sell it at a loss, and does not provide OS sooner to itself, then it does not put other manufacturers such as Dell at disadvantage.

Charles said...

Keeperplanet said: What I am talking about is that with the statement from Bill Gates that he intends to own the living room and that Xbox division is likely the division to do that. If Gates is talking about software sold to your OEMs then its not an issue, but if he is talking about building dozens of specialty products to serve the consumer needs in the living room, he is talking about being a Sony with the caveat computing devices for the consumer in the home. Hardware, coupled with software, like the personal computer. The poster said it was the intention of Microsoft to make a computer for the living room. Direct hardware+software manufacturing competition to your OEMs.

Gates has been pushing convergence for almost a decade and using consumer electronics (most recently game consoles and 'surface computers') as the vehicle to push MS technology.

Best case, Microsoft is so far out ahead of what consumers might actually want that they've failed to bridge from need/want to solution, i.e. consumers stopped following.

Worst case, Microsoft is yet again telling consumers what they want and consumers continue to shrug off being told they should want convergent appliances (mobile devices excepted).

Yes, Microsoft wants to "own the living room" and thinks convergence of TV, phone, games, and email/message on MS device is the future. But, no, the consumer opts for keeping their various 'appliances' separate from each other and especially keeping their increasingly headache-prone PC quarantined (imagine your TV & phone not working because Vista detected a DRM violation... lol)

Anonymous said...

Gates has been pushing convergence for almost a decade and using consumer electronics

Bill Gates has always been a sci-fi obsessed embarrassment with too much time and money on his hands and not enough critical thinking skills.

His ideas about home automation are patently ridiculous. Great, you can wear a radio tag and have your TV show/light settings/music/whatever follow you from room to room.

What he doesn't seem to realize is that it's not killing anybody to flip a light switch, or go to the living room to watch TV/listen to the stereo. There is absolutely no motivation to spend thousands of dollars (and set up extra TVs, speakers) on home automation.

Same with "convergence." His bright idea is that TV should be more interactive, integrate with the web, etc. But people watch TV for passive entertainment. Ideally you get engrossed in a TV show and pay attention to it, not try to surf the web at the same time. Who goes to, e.g., a play or an opera and says, "hey, this opera is great but I wish it was more interactive and I could surf the web at the same time." And here's the nail in the coffin--now that everybody is switching from desktops to laptops, all you have to do is take your laptop into the living room when you watch TV and you can use it to check IMDB, etc. and you have absolutely zero need for this media center convergence nonsense.

Bill did a great job with DOS and Windows and building the company but I am happy to see him go--more than half of his bright ideas and pet projects have no basis in reality. Unfortunately Steve doesn't seem to have any bright ideas or pet projects at all. :/

Anonymous said...

Robbie Bach dumping a s--t load of shares on the market today...what a shocker!!!! Prick.

If Mini has decided to enable comment moderation again, this is most likely why.

I may share the opinion, but let's try to employ a bit more self-regulation so Mini doesn't have to do it for us.

Anonymous said...

Agile is yet another software development buzzword. The only people I know who feel strongly about these buzzwords are windbags who are in love with the idea of developing software. Usually managerial types who have never written anything significant themselves. If you talk with a good developer, he will go on and on about the performance or maintainability or robustness of some piece of code and never mention agile or Ruby or design patterns etc.

Ben Smith said...

Here is a posting I made to an internet mail list about this blog. Feel free to take it or leave it. No need to protect my identity. (I did edit this version to remove internall MSFT parts) - you can see the whole mail in the POGO archive.

From: Ben Smith
Sent: Wednesday, May 30, 2007 4:04 PM

Subject: On Mini-MSFT

I have promised my thoughts on Mimi as a change agent to a few people for a few months I am going to take a few minutes to give some thoughts on Mini. As always – I welcome your thoughts too.

On Mini-Microsoft – I get asked by people a lot about what I think o Mini-Microsoft and the blog that he or she runs or if I know who this person is (I don’t). Here are my thoughts on Mini.

First, whether one appreciates the individual’s methods or not, I think it would be na├»ve for anyone to believe that the work of Mini-Microsoft in raising awareness the lack of transparency in HR in the rank and file of MSFT and causing some senior execs heartburn wasn’t a huge catalyst in the HR renovations Lisa (and really the entire HR organization) have begun. Kudos to Mini for this – certainly not the way I would have done things or would recommend anyone to pursue, but the results are the results.

Second, I do read mini occasionally with a smile because there is a large amount of “be careful what you ask for…” in action here. One of Mini and Mini’s audience (which at times boarders on cult of personality) primary calls was for increased transparency around Exec compensation. In part due to changes in SEC regulations and increased pressures on exec comp and in part to due to Mini’s awareness building work, and a host of other factors, our compensation system is remarkably more transparent than before (a change I think very much for the better). Now the egos and envy come into play. It is an inevitable fact of transparency and human emotion that this happens. Nobody’s fault – just is. I do think that the company has not handled the messaging of this very well. As I have said many times, Microsoft is an entrepreneurial company – one that has largely been built on the ambition of people to make their dreams come true from financial freedom. We are no longer in an era where are all boats will float. Get over it and don’t begrudge those that through luck or skill were part of it. You can’t change it. But Microsoft still does offer opportunities for both people who want to make a great living and those who want to be truly wealthy.

For perspective in 2005 (latest year data is available) the median pretax income in the US was $46K. The 80% percentile is $88K (which in total comp is around L61/62). and 95th percentile is $157K (which in total comp is level 64/65.) as can be seen in the salary info leaked last year. Let’s all keep this in mind before we bite the hand that feeds us too many times. While the comp process itself is highly sub-optimal, the overall comp numbers are not as tragic as one might think from reading Mini or Lisa’s blog. My take is that instead of calling for the heads of Partners at MS, we should be celebrating each of their successes, learning for them, and building the next generation of leaders. I do think though we need to consider more exec like awards for all employees (particularly team awards and cross company performance awards).

Third, one aspect of Mini that I find very troubling is what I see as a culture of victimization and disempowerment. At Microsoft, this is the beginning of a vicious feedback cycle because we have a culture and comp system that favors creative, ambitious, results driven technical and management leaders. Frankly put, people who are self-disempowering aren’t going to get a lot of helping hands (maybe to a fault). Microsoft is a company of opportunities if you don’t take them, someone else will. As a lawyer here once told me, Microsoft’s internal slogan would aptly be “Who’s eating your lunch today?” To be clear, this does not mean we each need to be sharks looking for the bloody water; rather to excel at Microsoft each of us must find our own way to contribute to the great products and services we build. I love Ad Astra and POGO because is a different way of contributing to this end that broadens the number of empowered people.

Anonymous said...

Aren't you a partner yet, Ben?

Anonymous said...

I hope that brainless guy who is calling everything "sunk cost" is gone for the Summer.

As many people have already explained to you, investment is not a sunk cost.